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Author: 


Nystrom,  Paul  Henry 


Title: 


The  economics  of  retailing 


Place: 


New  York 


Date: 


[1919] 


f'^'^2  /S'l 


MASTER    NEGATIVE   # 


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Nystrom,  Paul  Henry,  1878- 

The  economics  of  retailing,  by  Paul  H.  Nystrom  ...    2d 
ed.    Now  York,  The  Eonald  press  company,  i9i9.  igp^jj. 

xvi,  404  p.    diagrs.    22*^™. 

Bibliography  at  end  of  most  of  the  chapters. 


1.  Retail  trade.       i.  Title.  ,     » 


.      Library  of  Congress 
Copyright    A  559064 


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i 


THE  ECONOMICS  OF 

RETAILING 


BY 


PAUL  H.  NYSTROM,  Ph.  D. 

Sales  Manager,  International  Magazine  Company;  formerly  in  charge 
of  commercial  research  in  United  States  Rubber  Company;  fonnerly 
Associate  Professor  of  Economics,  University  of  Minnesota,  and  As- 
sistant Professor  of  Political  Economy.  University  of  Wisconsin. 


Third  Printing 


NEW  YORK 
THE  RONALD  PRESS  COMPANY 

1922 


c 


/f 


1 


Copyright,  1915,  by 
The  Ronald  Press  Company 

Copyright,  1919,  by 
The  Ronald  Press  Company 

AH  Rights  Reserved 


TO 

MY  WIFE 

WHOSE  DEVOTION 

AND  HELPFULNESS  HAVE 

MADE  THIS  WORK 

POSSIBLE 


3  as^.s 


PREFACE 

This  book  aims  to  present  fact  material  and  to  suggest 
constructive  thought  on  the  subject  of  retail  distribution.  It 
does  not  tell  how  to  get  rich  quick  at  retailing.  It  presents 
but  little  theory  and  advocates  no  particular  or  special  method 
of  doing  the  work  of  the  retail  store.  Its  purpose  is  to 
describe  the  retail  business  as  it  is,  and  to  point  out  the  broad 
lines  along  which  retailing  progress  is  being  made. 

In  this  work  the  attempt  has  been  made  to  reduce  the 
knowledge  about  retailing  to  teachable  form,  and  to  make 
it  usable  alike  to  the  ambitious,  thinking  man  already  in 
business  and  to  the  student  who  desires  to  gain  an  intimate  in- 
sight into  this  interesting  as  well  as  important  field  of  human 

work. 

Except  in  fragmentary  form,  there  has  been  but  little 
written  upon  which  the  writer  could  build.  The  effort  has 
been  made,  with  what  success  the  reader  must  judge,  to 
bring  together  in  one  volume  a  summary  of  the  best  thought 
so  far  expressed;  but  much  of  the  material  presented  is  the 
result  of  the  writer's  own  observation  and  experience  in  the 
retail  business,  and  of  what  he  has  gathered  in  conference 
with  over  a  thousand  retail  store  managers  and  salespeople 
who  were  students  in  his  classes  in  retail  methods,  during 
the  years  1909  to  191 5. 

Every  part  of  the  work  has  been  tested  by  presentation 
to  groups  of  people  engaged  in  the  retail  business.  Every 
point  has  been  held  up  to  the  standard  of  practicability.  It  is 
to  be  presumed,  however,  that  it  is  not  free  from  error,  and 
no  one  will  be  more  glad  than  the  writer  to  have  these  errors 
pointed  out.  A  science  of  retailing  can  become  possible  only 
by  the  freest  and  the  most  critical  interchange  of  thought. 


I 


VI 


PREFACE 


This  preface  may  not  be  closed  without  an  expression  of 
the  writer's  personal  indebtedness  for  inspiration  and  sug- 
gestions, to  the  members  of  the  faculty  of  the  Department 
of  Political  Economy,  and  particularly  to  Professor  William 
A.  Scott,  Director  of  the  Course  in  Commerce,  in  the  Uni- 
versity of  Wisconsin. 

Paul  H.  Nystrom 

New  York  City, 

September,  191 5. 


PREFACE  TO  SECOND  EDITION 

The  reception  of  the  first  edition  of  "Economics  of 
Retailing"  by  reviewers,  critics,  and  readers  has  been  very 
gratifying.  Few  criticisms  have  been  made  but  many  com- 
mendations have  been  received.  This  friendly  reception  has 
prompted  the  preparation  of  this  second  edition.  The  former 
work  has  been  gone  over  carefully.  Three  new  chapters  have 
been  added  and  much  new  matter  has  been  inserted.  Former 
errors,  so  far  as  discovered,  have  been  corrected  and  every 
effort  has  been  made  both  by  the  publishers  and  the  author 
to  bring  the  work  thoroughly  up  to  date.  It  is  hoped  that 
this  edition  will  more  nearly  merit  the  compliment  paid  by  an 
indulgent  reviewer  of  the  first  edition  who  characterized  it  as 
"the  standard  work  on  retailing." 


Paul  H.  Nystrom 


New  York  City, 

September  30,  19 19. 


CONTENTS 


Chapter 

I     Distribution 


Page 
I 


Distribution  Defined 

Scientific  Methods  of   Distribution 

Reasons   for  Lack  of   Interest 

Former  111   Fame  of  Retailers 

The  Views  of  Adam   Smith  and  Herbert  Spencer 

Changed   Attitude   of    Public   Toward   Retailers 

Beginnings  of   Retail  Trade   Literature 

Development  of  Business  Writing 

Economic  Writings  of  the  Nineteenth  Century 

Early  Business  Books 

Recent  Tendencies 

Solving  the  Distribution  Problem 

II    The    Distributive    System 12 

The  Retail   Store 

The  First  "Shops" 

Advent  of  the  Middleman 

Rise  of   Specialty  Stores 

Foreign   Trade— The   First   Merchants 

Merchandising   Organization 

Effect  of  Industrial  Revolution 

Beginnings  of  Wholesaling 

Wholesale  Methods 

Pre-Civil  War  Selling  Methods 

Founding  of  Dun's  and  Bradstreet's 

The   Mercantile  Agency 

Opposition  to  Agency  Methods 

Development  of  Present-Day  Selling  Methods 

Results  of  the  Traveling  Salesman   System 

Growth  of  the  Retail  Stores 
-^Types  of  Stores 
_The  Modern  Distributive  System 

Channels  of  Distribution 


III     The   Consumer 


30 


The  Store  and  the  Consumer 

Power  of  the  Customer 

Consumers    and   Their    Demands 

Demand   Influenced  by  Scarcity  of  Children 

Sex  as  a  Factor 

Selling  to  Women 

VII 


Vlll 


Chapter 


CONTENTS 


CONTENTS 


Habits  of  Customers 

Racial  Characteristics  of  Customers 

Community  Preferences 

Sectional  Styles 

General  Consumer  Characteristics 

Income;  Its  Relation  to  Demand 

Per  Capita  Consumption 

Average  Family  Expenditures 

Appealing  to  Instincts 

Fluctuation  of  "Consumer-Demand" 

Canned  Goods  an  Example 

Canned  Goods  and  the  Cost  of  Living 

Demand   for  Canned   Goods   Certain 

Other  Examples  of   Changed  Demand 

Reasons   for   Changed   Demand 

Consumer  Rules  Retail  Market 

IV    Present  Status    of  Retailing   .     . 


Page 


Chapter 


Census  Retail  Store  Statistics 

Census  of  1910 

Difficulties  of  Comparison 

Massachusetts   Trade   Census 

Report  of  Massachusetts  Bureau  of  Labor  Statistics 

Mercantile  Agency  Lists 

V    The  Expenses  of  Retailing 


Analyzing  Expenses 

Three  Factors  of  Production 

Retail  Cost  Accounting  Investigations 

Other   Investigations 

Two  Distinct  Costs 

Sales  Cost  Basis  vs.  Goods  Cost  Basis 

Expenses  Variable 

Results   of   Cost    Investigations 

Accurate  Data  Unavailable 

VI    Retail  Salespeople  and  Their  Work 

Division  of  Labor  in  Retail  Store 

Amount  of   Sales  Work 

Men   and   Women   in   Retail   Stores 

Serving  the    Customer 

"Making  the  Connection" 

Satisfying  Desires 

Influencing  a  Decision 

"Getting  Your  Money's  Worth" 

Salesmanship  as  a  Social  Good 

Evils  of  Salesmanship 

Dishonesty 

Factors  of  Successful  Selling 

Meeting  a  Difficult  Situation 


56 


69 


IX 

Page 


83 


Health  and  Education 
The  Gifts  of  Health 
Personal  Hygiene 
The  Store  Physician 

VII     Standards  of  Retail  Sales  Service   .... 

Service  Manuals  and  Rule  Books 
Variation   in   Manual   Detail 
The  Manual  for  Managers 

VIII    Securing  Good  Salespeople 9^ 

Retail  Store  Labor  Turnover 
The   Problem    of    Labor    Turnover 
Reasons  for  High  Rate  of  Turnover 
Permanent  Employees  Numerous 

Department  of  Employees 

Cost  of  "Hiring  and  Firing" 
The  Employment  Department 
The  Pepartment  of  Employees 

Job  Analysis  in  the  Retail  Store 

Job  Analysis 

Value  of  Job  Analyses 

Methods  of  Making  Analyses 

Sources  of  Applicants  for  Positions 

Filling  Vacancies 

Good-Will  as   an   Employment   Factor 

Interviews  and  Tests 

Ability  Judged  by  Interview 

The  Mirage  of  Character  Analysis 

Phrenology 

Graphology 

Physiognomy 

Employment  Psychology 

The  Work  of  Binet  and  Simon 

Psychological  Tests  for  Retail  Salespeople 

Observing  the  Applicant 

The  Application  Blank 

Use  of  the  Application  Blank 
Purpose  of  Questions 

References 

The  Value  of  References 

Physical  Examinations 

The  Hindrance  of  Physical  Weaknesses 
The  Physical  Examination 
Prescription  vs.  the   Physical  Audit 
Objections  and  Expenses 


I 


X  CONTENTS 

Chapter                                                                                             Page 
IX    Education  for  Retail  Salespeople 112 

Methods  of  Training  Employees 

Systematized    Instruction    for   New    Employees 

The  Store  Conference 

Store  Manuals 

Trips   for   Salespeople 

Efficiency  Bulletins 

Trade  Papers 

Libraries  and  Book  Collections 

Reading  Courses 

Correspondence  Courses 

Progressive   Promotion   System  of   Training 

The  "Flying  Squad" 

The  Understudy  System 

Gilbreth's  Variation  of  the  Understudy   Idea 

The  School  of  Salesmanship 

The  Beginning  of  Salesmanship  Training 

The  Literature  of  Salesmanship 

Salesmanship  Instruction  in  Retail  Stores 

The  First  Store  School 

Mrs.  Prince's  Work 

Diana  Hirschler's  Work 

The   Department   Store   Education  Association 

The  Merchandise  Manuals 

University  "Merchant's   Courses" 

Progress  at  Other  Universities 

Continuation  and  Public  Schools 

The  Carnegie  Text  Course 

Training  for  Teachers 

Other   Courses 

Outline  of  a  Course  of  Study  for  Retail  Salesmanship 

X     The  Wages  of  Salespeople 145 

Percentage  of  Wages  to  Total  Expense 

Statistics  of  Sales  Expense 

Percentage  of  Salespeople's  Wages  to  Total  Sales 

Salaries  of  Salespeople 

General   Wage   Levels 

Methods  of  Wage  Payment 

Difficulties   in   Commission    Payments 

"PM's"   and   "Spiffs" 

Profit-Sharing 

Purposes  of  Premium  Payments 

Extra-Salary  Remuneration 

Thrift  Plans 

Sick  and  Death  Benefit  Associations 

Fines 

The  Social  and  Econornic  Side  of  Low  Wages 

Women  and  Low  Wages 

Unionization  of  Retail   Store  Employees 

Outside  Help 


CONTENTS 


Chapter 


XI 


Page 


Sources  of  Minimum  Wage  Propaganda 

Minimum  Wage  Legislation 

Operation  of  Minimum  Wage  Laws 

The  Argument  for  a  Minimum  Wage 

The  Argument  Against  a  Minimum  Wage 

A  Summary  of  the  Minimum  Wage  Arguments 

Practical  Education  for  Salespeople 

XI    Location  and  Rent  in  the  Retail  Business   . 

Principles  of  Rent  Applicable  to  Retail  Store 

Locations 

A  Good  Location  Necessary  to  Successful  Selling 

Rent  Defined   and  Classified 

Distinction  Between  Building  and  Ground  Rent 

Amount   of   Rent   Paid 

An  Illustration 

Managerial   Ability  a  Factor  in  Higher   Prices 

Competition — An    Illustration 

Plan  of  Economists 

Faults  of  Economists'  Theory 

Rents  Not  Controlled  by  Average  Business  Man 

Increase  in   Cost  of  Doing  Business 

Reasons  for  High  Rents 

Rise   of   Ground    Rents 

Counterbalancing  Forces 

Percentage  of  Rent  to  Sales 

Relative  Increase  of  Rents 

Relative  Increase  from  Towns  to  Cities 

Characteristics  of  Retail   Store  Rents    *•"' 

How  High  Can  Rents  Go? 

Checks  to  Operation  of  Rent  Tendencies 

XII     Location    and    Rent     in    the     Retail     Business 

(Continued) 188 

Factors  of  Desirability  in  Location 

Value  of  Location  Determined  by  Profits 

Accessibility  Determines  Sales 

Neighborhood  Stores 

The  Centrally  Located  Store 

Purchasing  Power  of  Customers  a  Factor  of  Location  Value 

Frame-of-Mind   of    Passers-by  a   Factor 

"Shoppers"   the   Most   Valuable    Passers-by 

Tendency  of  Retail  Stores  to  Cluster  Together 

Other  Advantages  of   Clustering 

Retail  Stores  and  the  Public  Market 

Buying  Habits  of  Customers 

General  Influences 

Preferable   Side  of   Street  in  New  York 

EflFects  of  Climatic  Conditions 

"Hoodoo"  Locations 

Crowd  Habits 


xu 


CONTENTS 


Chapter 


Corner  Locations 

Disagreeable  Surroundings  a  Detriment 

Ease  of  Access  Desirable 


Page 


XIII     Location     and     Rent     in     the     Retail     Business 

(Continued) ^04 

Intensive  Use  of  Location 
Cultivating  a  Location  Intensively 
Erect  a  Suitable  Building 
General  Structure 
Basements- 
The  Upper  Floors 
Estimating  Floor  Value 
Apportioning  Floor  Rent 
Use  of  Mezzanine  Floors  and  Balconies 
Using  Space  Effectively 
Allocating  Goods 
Finding  Storage  Room 
Quick  Service— Quick  Turnover  of  Goods 
Arranging  Attractive  Displays 
Advantages   of   Standard   Equipment 
Fixtures  that  Economize  Space 
Attracting  Trade :  Advertising 
Window  Displays 
Value  of  Display  Space 
Distributing  Rent 
Taxation  Values 
Other  "Intensive  Cultivation"  Methods 


XIV    How  Retail  Prices  Are  Fixed 


Charging  "What  the  Traffic    Will  Bear" 

Factors   of  Retail   Price;   Costs 

Other  Price  Considerations 

Desirability  of  the  Article 

Intensity  of  Desire 

Increasing  Desire  by  Teaching 

Competition 

Destructive  Price-Cutting 

Setting  a  "Fair  Price" 

Habit  and  Price 

Ethical  Influences  on  Prices 

Differing  Ideas  of  Value  Influence  Prices 

Toilet  Soap  an  Example 

Capital  and  Turnover 

Relation  of  Expense  to  Increased   Sales 

Rapid  Turnover  Raises  Net  Profit 

Departmentalized  Accounts 

Relation  of  Cost  Accounts  to  Prices 

How  is  the  Selling  Price  Set? 

Salespeople  Assist  in  Price-Fixing 

Goods  of  Variable  Value 


222 


CONTENTS 


Chapter 


Xlll 

Page 


The  One-Price  Policy 
Success  of  One-Price  Policy 
The  Variable   Price   System 
Publicity  of  Retailers'  Costs 

XV    The   Department   Store 246 

What  a  Department  Store  Is 
Origin  of  the  Department  Store 
Department   Store  Formed  by  Consolidation 
Period   of   Rapid   Development 
Number   of    Department   Stores    Today 
The  Department   Store  Abroad  .    • 

Characteristics   of   Department   Store   Mer- 
chandising 

Unity 

Service 

Specialized  Advertising 

Bargain  Sales 

Miscalculating  Demand 

Department  Store  Buying 

Results   of    Stabilized   Merchandising   Conditions 

Untruthful  Advertising  Not  Common 

Specialized   Organization 

Each  Department  a  Store 

Comparative  Organization  Charts 

Efficiency  of  the   Department   Store 

Division  of  Labor 

Advantage  of  a  Central  Location 

Economics   of   the   Department   Store 

High  Expenses  of  Department  Stores 

Wasteful  Leaks 

Poor  Salesmanship  General 


XVI    Chain-Store  Systems 


268 


Origin  of  Chain  Stores 

Number  of  Chain  Stores 

How  the  Chains  Developed 

The  Object  of  Chains 

The  Advantage  of  Buying  in  Bulk 

Chain   Stores  and  Jobbers 

Jobbers'  Chains 

Manufacturers'   Chains 

Hazards  of  the  Manufacturer 

Consumers'  Co-operative  Chains 

Net  Returns  the  Universal  Object 

Superior  Executive  Management  of  Chains 

Competitive  Advantages 

Cut  Prices  Possible 

Private  Brands 

Chain-Store  Disadvantages 

Local  Managers  Lack  Interest 


XIV 


Chapter 


CONTENTS 


Page 


Careful  Organization  Necessary 

Special  Departments 

Subsidiary  Companies 

Store  Equipment  Department 

Paily  Reports 

Weekly  Summaries 

Checks  and  Safeguards 

Getting   Results 

Premium  for  Chain  Store  Employees 

Importance   of   Local    Manager 

More   Chains   in   Future 

XVII     The  Mail-Order  House 288 

Mail-Ordcr   Business   a   Recent   Development 

The  Establishment  of  the  First  Mail-Order  House 

Other  Important  Mail-Order  Houses 

Volume  of  Mail-Order  Business  j   •     tt    c 

Mail-Order   Method   Most   Highly   Developed  in    U    .i>. 

Reasons  for  Rapid  Growth 

Influence  of  Increased  Earning  Power 

Mail-Order  House  vs.   Small  Town  Merchant 

Growth  of  Advertising 

Price  Arguments  .  ^    ,       t>     • 

Causes  of  Development  of  Mail-Order  Business 

Advertising  Man  Important 

Handling   Orders   Efficiently 

An  Innovation 

Cash  and  Credit 

The  Purchasing  Department 

Methods   of   Buying  , 

Determining  the  Minimum  Price 

Cash  Buying 

The  Guarantee 

Truthful  Advertising 

The  Correspondence  Department 

Efficiency  Methods 

The  Future  of  a  Mail-Ordcr  House  Employee 

Cost  of  Doing  Business 

Advantages  of  Mail-Order  Houses 

Economic  Disadvantages 


CONTENTS 


XV 


Chapter 


Page 


I 


XVin    The  Failure  Rate  in  the  Retail  Business 

Business  Death  Tables 
Definition  of  Terms 
Agency  Failure  Statistics 
Early  Failure  Statements 
Other  Estimates 
The  Conflict  of  Statements 
The  Oshkosh   Study 
General  Facts  About  Oshkosh 
Oshkosh  a  Typical  City 
The  Table  of  Retail  Dealers 


.   309 


Results  of  the  Survey 

Summing  Up  the   Situation 

Previous   Occupations   of   Oshkosh   Merchants 

Relative   Rates  of   Change   in   Retail   Business 

Causes  of  Failure 

Failure  Rate  High 

The  Wholesaler  and  Retail  Failures 

How   Relief  May  Come 

XIX  Are  There  Too  Many  Retail   Stores?    .     .     .     ,   %2'7 

Too  Many  Retailers? 

Meaning  of  the  Question 

United   States   Census   Report 

What  the  Table  Tells 

Number  of  Stores  and  Population 

Another  Comparison 

Retailers   Increase   with   Population 

Not  Certain  that  There  Are  Too  Many  Stores 

Ihe  Function  of  the  Retailer 

$?^c55"'"'   Statistics;   Manufactured  Goods 

Ine  Statistics  Analyzed 

A  Valid  Objection 

Ratio  of  Manufactured  Foods  to  Number  of  Retailers 

Distributors   Must  Increase  with   Products  ^^'^^^^" 

The  Growth  of  Cities  and  Distribution 

&ction'co"s  '''"'"'  ^'  ^"^"^  ^"^  Distribution 

Manufacturing  Costs  and  Distribution  Costs 

Ihe  Retailer's   Viewpoint 

The   Public's   Viewpoint 

Retail  Stores  Do  Not  Add  Expenses 

XX  Public  Regulation  of  the  Retail  Business  . 

Regulating  Retail  Business 

Business  Taxes 

Licenses  and  Taxes 

Paying  Business  Taxes 

Purposes  of  Business  Taxes 

Monopolies   and   Taxes 

Peddler's  Taxes 

Class  Taxes 

Methods  of  Assessment 

The  French  Business  Tax 

The  Prussian  System 

Canada's  Tax 

Business  Taxes  in  the  U.  S. 

State  Business  Taxes 

Municipal  Taxes 

Taxable  Occupations 

Who   Pays   the   Tax? 

Shifting  the   Tax 

Opposition  to  Business  Regulation 


340 


CONTENTS 


XVI 


Page 


Chapter 


.  367 


Arguments  for  Business  Regulation 

Taxes  Limit  Competition 

T  icense  System  Best 

Regulation  Eliminates .  Parasitism 

Difficulties  of  Regulation 
Is  Regulation  Necessary? 
Summary 

XXI    The  Ideal  Retailing   System • 

Retailer  Performs  a  Useful  Function 

rhaneing  Retail  Methods 

EvoEn  of  g-mbu^-%^ystems 

Retailer  as  a  Public  Servant 

The  Salesman's  Duty 

Proper   Store  Equipment 

Protecting  the  Customer 

Legal  Objections  to  Licensing 

The  Rise  of  the  Cham  Store  Undesirable 

Multiplication  of  Special  Agencies  ui 

The  Remedy  ^     ,     ^ 

Admission  of  All  Products 

New  Retailing  Problems 

Benefit  to  Consumer  ^^^^^ 

Advantages  and  Disadvantages  u 

Three  Necessary  Reforms 

Trusts  ^      .  T7  -1 

Checking  the  Trust  Evil 
Thp  P    A.  T.  A.  ,    . 

Extent  of  Government  Regulation 

^rtresf  Th^outh  Scientific  Study 
B-DEALERS  IK  THE  UKiTEO  States  :n  ,9:3  .     ■     -3^ 

C-RULES  FOR   FIGURING   CoSTS   AND  PROFITS    •       •       •    39° 

D-Methods  of  Handling  Cash,  Credits,  and  Sold  ^^^ 
Goods 


THE   ECONOMICS  OF   RETAILING 


CHAPTER  I 

DISTRIBUTION 

Distribution  Defined.-^To  move  goods  from  where  they 
are,  to  places  where  they  are  wanted;  to  effect  exchanges  so 
that  those  who  have  merchandise  to  dispose  of  and  those 
who  desire  to  acquire  merchandise  may  both  be  accommo- 
dated ;  and  to  get  the  goods  from  the  producers  and  place  them 
in  the  hands  of  the  consumers — this  is  the  problem  of  the 
distribution  of  goods. 

The  term  "distribution"  is  used  in  another  sense  in  the 
standard  books  on  political  economy.  There  it  means  the 
shares  of  income  received  by  members  of  society  for  their 
participation  in,  or  contribution  to,  the  economic  system.  The 
term  as  used  here  has  no  reference  to  the  income  of  anyone. 
It  refers  solely  to  the  processes  of  carrying  and  exchanging 
material  goods,  and  used  in  that  sense,  is  but  a  part  or  a  phase 
of  what  economic  treatises  call  ^'production."  Wherever  the 
term  distribution  is  used  in  this  work  it  should  be  remembered 
that  it  means  distribution  of  goods,  and  not  what  technical 
treatises  on  economic  theory  call  distribution  of  wealth. 


Scientific  Methods  of  Distribution. — Attention  has  cen- 
tered for  years  on  methods  of  increasing  the  production  of 
goods,  of  reducing  the  expenses  of  production,  and  of  mak- 
ing the  part  played  by  labor  in  production  relatively  easier. 
Veritable  sciences  have  been  developed  in  engineering,  in  min- 


2  ECONOMICS  OF  RETAILING 

ing,  and  in  agriculture.  In  the  producing  of  things  in  either 
field  or  factory  a  knowledge,  almost  exact,  is  at  the  disposal  of 
the  managers.  As  a  result,  a  large  part  of  the  uncertainty 
formerly  inherent  in  production  is  being  eliminated.  But 
this  is  not  so  in  the  distribution  of  goods  to  the  ultimate  con- 
sumers. In  this  there  are  a  number  of  important  functions, 
such  as  transportation,  insurance,  banking,  storage,  and  all 
that  might  be  comprehended  under  the  term  marketing — the 
choosing  of  the  right  methods  of  distribution,  the  assembling, 
packing,  sorting,  handling,  the  buying  and  selling.  These, 
save  as  to  the  first  three,  i.e.,  transportation,  insurance,  and 
banking,  have  received  but  little  scientific  attention — only 
that,  in  fact,  which  business  men  give  to  their  practical  affairs. 
Production  has  been  the  object  of  solicitous  scientific  study 
in  laboratory  and  school,  while  distribution,  except  as  to  the 
three  specialized  phases  named  above,  has  been  left  largely 
to   itsfelf. 

It  can  hardly  be  argued  that  this  neglect  of  distribution  is 
due  to  the  small  importance  of  the  subject.  It  has  been  es- 
timated that  the  costs  of  distributing  goods  exceed  the  costs 
of  manufacture.  The  number  of  people  engaged  in  the  dis- 
tributive occupations  equals  nearly  one-sixth  of  the  total  num- 
ber of  gainful  workers.  The  number  of  people  engaged  in 
the  retail  business  alone  exceeds  the  number  of  those  in 
any  line  of  manufacture,  and  is  exceeded  only  by  the  number 
engaged  in  agriculture. 

It  cannot  be  that  the  distribution  of  goods  h^is  been  so 
well  done  that  no  criticism  could  be  made.  Indeed,  much 
of  the  fault  for  the  increasing  cost  of  living,  whether  rightly 
or  wrongly,  has  been  placed  by  many  people  upon  the  systems 
of  distributing  goods. 


Reasons  for  Lack  of  Interest. — Two  main  reasons  may  be 
cited  at  this  point,  to  explain  why  this  important  matter  of 


DISTRIBUTION 


distribution  has  not  received  the  study  that  it  should.  First 
of  all,  scientific  progress  is  never  made  in  all  lines  at  the 
same  time.  Advances  are  made  in  one  thing  at  one  time,  in 
another  at  another  time,  etc.  The  development  of  the  sciences 
pertaining  to  agriculture  and  engineering  have  made  their 
greatest  strides  within  the  memory  of  men  now  living.  These 
productive  sciences  are  still  in  process  of  rapid  growth.  Why 
scientific  development  should  have  begun  on  these  lines  is 
obvious.  Without  production  there  could  be  no  distribution.  It 
is  safe  to  say  that  the  distributive  system  as  it  existed  before 
the  present  age  of  factory  production  was  both  adequate  and 
efficient  for  its  time.  The  progress  of  production  has  made 
necessary  the  study  and  improvement  of  distribution. 

The  second  reason  why  thorough-going  studies  have  not 
yet  been  made  in  distribution  is  that  the  distributive  process 
—the  handling  of  goods  and  the  work  of  middlemen — has 
been  considered  by  the  public  as  something  in  the  nature  of 
a  necessary  evil.  Press  and  platform  have  united  in  giving 
the  impression,  indirectly  at  least,  that  distribution  is  less  im- 
portant than,  and  somewhat  beneath,  the  productive  enterprise, 
Economists  have  given  practically  their  entire  thought  to 
analyzing  production  rather  than  distribution.  Distribution 
has  been  taken  for  granted.  To  the  public  the  mention  of 
middlemen  and  their  work  has  usually  suggested  only  the 
thought  of  trickery  or  dishonesty. 

Former  111  Fame  of  Retailers.— Ever  since  the  beginning 
of  trade  there  has  been  a  tendency  to  attribute  mean  qualities 
to  the  dealer,  largely  due,  no  doubt,  to  the  fact  that  his  earn- 
ings could  come  only  by  adding  a  profit  to  his  purchases  before 
selling  them.  Since  no  change  was  made  in  the  form  of  the 
goods,  people  were  inclined  to  reason  that  additions  to  the 
price  were  unjust  impositions.  It  is  not  urged  that  no  worse 
causes  than  this  have  helped  to  create  the  evil  impression,  but 


.  ECONOMICS  OF  RETAILING 

this  in  itself  was  sufficient  to  give  impetus  to  the  view,  and 
probably  accounts  for  the  larger  part  of  it. 

"As  a  nail  sticketh  fast  beneath  the  joinings  of  the  stones, 
so  doth  sin  stick  close  between  buying  and  selling."'  Such 
was  the  view  of  the  ancient  Hebrews. 

Ancient  Persians  held  commerce  to  be  a  school  of  lies.^ 
The  old  Greek  word  for  retail  trader  meant  the  same  as  falsi- 
fier. To  retail  and  to  falsify  were  synonymous.  Artistotle,  the 
great  Greek  philosopher,  said: 

''Of  the  two  sorts  of  money  making,  one,  as  I  have  just 
said,  is  a  part  of  household  management  (agriculture  and 
the  iiand  trades),  the  other  is  retail  trade;  the  former  neces- 
sary and  honorable,  the  latter  a  kind  of  exchange  which  is 
justly  censured,  for  it  is  unnatural,  and  a  mode  by  which 
men  gain  from  one  another."  He  then  adds,  "The  most 
hated  sort,  and  with  greatest  reason,  is  usury  (charging  m- 
terest  for  the  use  of  money)  which  makes  a  gain  out  of  money 
itself,  and  not  from  the  natural  use  of  it."^ 

Cicero  went  so  far  as  to  claim  that  no  one  could  be  pro- 
ficient as  a  merchant  without  lying.  ''Nihil  proficiunt  mer- 
catorcs  nisi  mcntiantur:  mcrcatura,  si  tennis,  sordida  putanda 

est." 

The  Church  of  the  Middle  Ages  likewise  held  strong 
views  against  traders.  St.  Chrysostom  believed  it  scarcely 
possible  that  a  man  could  at  the  same  time  be  a  Christian  and 
a  merchant.  The  canon  law  prohibited  buying  in  order  to  sell 
again  at  a  higher  price.     It  was  considered  a  sin  to  gain 

money  in  trade. 

The  old  Italian  words  ''harullar  ''treccone/'  and  ''nz^endi- 
torer  used  to  designate  retailers,  also  signify  covetousness, 
tendency  to  cheat,  and  vileness. 

In    Medieval    England    laws    were    passed    against    "en- 

1  "Ecclesiasticus."  XXVII,  2. 

2  Ely,  "Problems  of  To-day,"  page  23 

3  "Aristotle's  Policies,"  Jowett's  translation,  page  ly. 


DISTRIBUTION 


grossers,"  "regrators,"  and  ''forestallers."  An  engrosser  was 
one  who  bought  in  order  to  sell  again;  a  regrator  one  who 
bought  in  order  to  sell  in  the  same  market  or  within  four 
miles  thereof;  and  a  forestaller  was  one  who  bought  goods 
before  they  came  to  market,  and  thus  prevented  them  from 
coming  to  market  in  the  hands  of  the  producers. 

The  Views  of  Adam  Smith  and  Herbert  Spencer.— Some- 
thing of  the  same  view  has  come  down  to  modern  times. 
Even  Adam  Smith,  the  founder  of  scientific  political  economy, 
warned  the  people  against  traders:  ''As  during  their  whole 
lives  they  are  engaged  in  plans  and  projects,  they  have  fre- 
quently more  acuteness  of  understanding  than  the  greater  part 
of  country  gentlemen.  .  .  .  The  interest  of  the  dealers,  how- 
ever, in  any  particular  branch  of  trade  or  manufactures,  is 
always  in  some  respects  different  from,  and  even  opposite  to, 
that  of  the  public.  .  .  .  The  proposal  of  any  new  law  or 
regulation  of  commerce  which  comes  from  this  order  ought 
always  to  be  listened  to  with  great  precaution,  and  ought 
never  to  be  adopted  till  after  having  been  long  and  carefully 
examined,  not  only  with  the  most  scrupulous,  but  with  the 
most  suspicious  attention.  It  comes  from  an  order  of  men 
whose  interest  is  never  exactly  the  same  with  that  of  the 
public,  who  have  generally  an  interest  to  decei\'e  and  even  to 
oppress  the  public,  and  who  accordingly  have,  upon  many 
occasions,  both  deceived  and  oppressed  it."* 

Herbert  Spencer  wrote  an  essay  entitled  'The  Morals 
of  Trade,"  in  which  he  enumerated  a  long  list  of  shortcomings 
of  the  trading  classes,  but  placed  a  large  part  of  the  blame  for 
these  on  the  customers  and  people  at  large.^ 

These  two  causes — on  the  one  hand,  the  necessary  primacy 
of  production  and  its  obvious  relations  to  social  welfare,  and 


*  "Wealth  of  Nations,"  Book  I,  Ch.  XI. 
^  "Spencer's  Essays,"  page   107  #. 


5  ECONOMICS  OF  RETAILING 

on  the  other,  the  contempt  for  the  occupations  of  distribution 
—very  largely  account  for  the  slowness  with  which  people 
have  come  to  see  any  need  for  the  study  of  the  distributive 
processes. 

Changed  Attitude  of  Public  Toward  Retailers— There 
are  many  indications  of  a  coming  change  in  this  attitude 
toward  retailers,  however.  For  example,  writers  no  longer 
say  so  much  about  the  dishonesty  of  dealers,  though  the 
jokesmiths  and  cartoonists  still  intersperse  this  idea  with 
the  mother-in-law,  slow  train,  precocious  child,  accident  to 
an  Irishman,  and  other  stock  mirth  provokers.  Criticism  is 
now  generally  leveled  at  the  inefficiencies  of  the  distributive 
system  rather  than  at  its  crookedness. 

This  is  a  favorable  sign,  and  one  can  well  afford  to  pardon 
or  neglect  the  crudeness  of  some  of  the  suggestions  that  are 
offered  as  panaceas,  since  these  suggestions  indicate  the  work- 
ing of  a  leaven  that  will  sooner  or  later  develop  into  solid 
research. 

Beginnings  of  Retail  Trade  Literature.-It  must  not  be 
supposed  from  the  foregoing  that  nothing  has  been  contributed 
towards  a  practical  theory  of  distribution,  nor  that  the  sub- 
ject has  received  no  serious  thought  at  all.  Three  hundred 
years  ago  Sir  Francis  Bacon  wrote : 

"The  wisdom  touching  negotiation,  or  business,  hath  no 
been  hitherto  collected  in  writing,  to  the  great  derogation  of 
learning  and  the  professors  of  learning.    ...   For  if  book 
were  written  of  this,  as  the  other,  I  doubt  not  but  learned 
men,  with  mean  experience,  would  far  excel  men  of  long  ex- 
perience, without  learning,  and  outshoot  them  with  their  own 

""^in  1726  the  first,  and  in  1727  tbe  second,  volume  of  a  re- 
markable work   appeared,   entitled   "The   Complete   English 


DISTRIBUTION  7 

Tradesman."     So  far  as  is  known,  this  was  the  first  attempt 
to  gather  in  book  form  in  the  English  language  the  maxims 
and  principles  of  the  best  practice  in  trading  and  retaihng  as 
carried  on  at  that  time.     The  first  volume  was  written  to 
serve  as  a  text-book  for  apprentices  and  beginners  in  mer- 
chandising.    The  second  considers  the  problems  that  experi- 
enced tradesmen  were  likely  to  be  interested  in.     Although 
now  out  of  date,  and  in  many  places  based  on  defective  eco- 
nomic theory    (Mercantilism),   there   are   within   these   two 
volumes  many  lessons  of  value    even    for    dealers    of    the 
present  time.     The  material  was  presented  in   a  clear  and 
most  interesting  manner.     The  author  of  this  brilliant  first 
effort  in  literature  on  trading  was  Daniel  Defoe,  well  known 
to  the  world  as  the  author  of  "Robinson  Crusoe." 

Development  of  Business  Writing.— No  attempt  will  be 
made  to  trace  the  literary  development  of  this  subject.     That 
would  require  more  time  and  space  than  can  be  given  here. 
\  few  statements  will  suffice.     The  next  notable  contributions 
following  Defoe's  book   seem   to   have   been   the   work   of 
economists,  Adam  Smith,  Ganilh,  J.  B.  Say.  J.  R.  McCulloch 
and  others  in  Europe,  while  Benjamin  Franklin  in  America  did 
a  "reat  deal  to  popularize  among  .merchants,  clerks,  and  busi- 
ness men  in  general,  much  homely  common  sense  and  wisdom 
of  value  in  the  conduct  of  business.     As  has  been  said,  the 
economists    generally   concerned    themselves    little    with    the 
processes  of    distributing    goods,    but,    in    developing    their 
theories,  they  indicate  the  lines  along  which  progressive  think- 
ing might  begin.     Besides  their  general  theoretical   studies, 
such  subjects  as  banking,  money,  and  credit,  and,  in  the  last 
half  of  the  nineteenth  century,  insurance  and  transportation, 
came  to  be  considered  in  detail.     Foreign  trade  has   been 
a  subject  given  much  consideration.     Politicians  have  based 
manv  of  their  doctrines  on  economic  grounds,  thus  bringing 


i' 


\i 


8 


ECONOMICS  OF  RETAILING 


up  much  controversy  over  such  questions  as  the  tariff  and 
taxes. 

Economic  Writings  of  the  Nineteenth  Century.— The 
turmoil  of  national  and  political  life  during  the  nineteenth 
century  turned  the  currents  of  economic  thinking  largely  into 
pohtical  lines.  'The  Wealth  of  Nations,"  ^'Political  Econ- 
omy," ''National  Economy,"  "Inquiry  into  the  Nature  and 
Origin  of  the  Public  Wealth,"  ''Political  Economy  and  the 
Philosophy  of  Government,"  and  "National  System  of 
Political  Economy,"  are  titles  of  early  works  which  show 
clearly  enough  the  bent  of  their  author's  minds.  The  produc- 
tion and  distribution  of  wealth  (distribution  in  the  sense  of 
the  economists)  was  to  them  a  matter  to  be  studied  in  the  light 
of  its  relation  to  government.  Individual  economics  was  left 
to  care  for  itself.  This  tendency  of  political  economy  to  em- 
phasize the  political  side  has  been  continued  down  to  the 
present.  But,  recently,  several  works  have  appeared  that 
give  considerably  less  space  to  the  political  phases  and  more  to 
an  explanation  of  the  causes  and  influences  operating  on  values, 
of  the  processes  of  production,  and  of  the  market.  These 
treatises  are  more  generally  denominated  "Economics,"  "Out- 
lines of  Economic  Theory,"  "Dynamic  Economics,"  "Prin- 
ciples of  Economics,"  and  "Introduction  to  Economics."  The 
change  in  emphasis  from  political  to  individual  and  private 
is  to  be  noted  in  the  tendency  to  use  the  word  "economics" 
rather  than  "political  economy." 

One  of  the  first  books  written  in  this  country 
solely  for  merchants  was  B.  F.  Foster's  "The  Mer- 
chant's Manual,"  in  1838.  Two  magazines  that  gave  con- 
siderable  help  to  trading  classes  during  the  middle  of  the 
nineteenth  century  were  Hunt's  Merchant/  Magazine  of  New 
York,  first  issued  in  1839,  and  DeBows  Reziew,  of  New  Or- 
leans,' begun  in  1846.     Hunt  was  a  prolific  writer  on  busi- 


DISTRIBUTION  9 

ness  topics,  most  of  his  material  appearing  in  his  magazine. 
J.  D.  B.  DeBow,  editor  of  DcBow's  Review,  was  a  professor 
of  political  economy  in  the  University  of  Louisiana.  His 
writings  and  editorial  work  were  of  a  substantial  sort,  espe- 
cially in  outlining  trade  conditions  in  the  South  and  West. 

Early  Business  Books. — A  number  of  books  on  business 
subjects  appeared  between  1850  and  1880.  Some  of  the 
best  known  are  mentioned  in  the  following  paragraphs. 

Edwin  T.  Freedley's  "A  Practical  Treatise  in  Business" 
passed  through  several  editions.  More  than  20,000  copies  had 
been  printed  by  1852. 

Freeman  H.  Hunt's  "Lives  of  American  Merchants"  ap- 
peared in  1858,  and  another  work  known  as  "Worth  and 
Wealth,  a  Collection  of  Maxims,  Morals,  and  Miscellanies 
for  Merchants  and  Men  of  Business"  had  appeared  in  1857. 
The  material  in  both  of  these  books  first  appeared  in  the 
form  of  magazine  articles  in  Hunt's  Merchants'  Magadne. 

Davies'  "How  to  Make  Money"  was  issued  in  1867  fol- 
lowed by  S.  H.  Terry's  "The  Retailer's  Manual,"  in  1869. 
This  latter  work  has  run  through  16  editions,  and  still  has 
some  sale  under  the  title  "How  to  Keep  a  Store." 

J.  A.  Scoville's  "Old  Merchants  of  New  York"  appeared 
in  1876. 

A  noticeable  characteristic  of  most  of  this  early  American 
literature  on  business  is  its  grandiloquent  and  fulsome  eulogy 
of  individual  business  men  whose  records  have  since  shown 
them  to  merit  but  a  small  part  of  the  praise  showered  upon 
them.  Another  characteristic  was  its  verboseness  and  flourish 
in  announcing  very  simple  and  plain  business  methods  and 
practices  as  if  they  were  great  discoveries.  Still  another  was 
a  general  tendency  to  moralize  at  every  possible  opportunity. 
To  exaggerate  somewhat,  the  line  of  moral  logic  seemed  to  be 
something   like   this:     Do   these   things   and   be   good,    and 


\ 


lO 


ECONOMICS  OF  RETAILING 


1 


you  will  be  rich;  be  rich  and  you  will  be  happy.  A  large 
amount  of  this  literature  was  distinctly  intended  for  moral 
instruction.  Much  of  it  was  written  by  ministers  and  tem- 
perance workers.  Some  of  the  following  titles  may  suggest 
the  character  of  the  reading: 

*The  Merchants'  Clerk  Cheered  and  Counselled,"  "Mer- 
cantile Morals,  or  Thoughts  for  Young  Men  Entering  Mer^ 
cantile  Life"  (1852),  "The  Merchant's  Clerk"  (1852),  ^^On 
the  Road  to  Riches"  (1876),  "Sins  of  Trade  and  Business" 
(1874),  "The  Bible  in  the  Counting  House,  Lectures  to 
Merchants"  (1878). 

Fashion  affects  the  literature  of  business  as  it  does  the 
popular  novels  of  the  day.  Moral  teaching— much  of  it, 
unfortunately,  mere  cant— was  the  fashion  in  light  business 
literature  of  the  middle  of  the  nineteenth  century,  much 
as  the  literature  of  "scientific  management"  rules  the  mode 
today.  Not  that  no  good  came  out  of  the  former,  nor  that 
good  is  missing  in  the  present  fashion— for  the  former  pro- 
duced some  lasting  results,  as  will  the  latter ;  but  these  waves 
of  thinking  characterize  our  general  mental  progress.  Each 
receding  wave  leaves  behind  some  substantial  products  of 
lasting  value  which  may  be  made  of  service  if  condensed, 
preserved,  and  crystallized  in  proper  form. 

Recent  Tendencies.— The  past  ten  years  has  seen  such  a 
flood  of  business  literature  as  has  never  appeared  before.  It 
is  out  of  all  these  efforts  that  an  organized,  systematic  treat- 
ment of  the  subject  is  becoming  possible.  With  the  adoption 
of  educational  courses  in  schools  and  colleges  dealing  with 
distribution,  the  establishment  of  experimental  distributive 
stations,  the  investigation  of  specific  problems  by  careful  un- 
biased methods,  the  accumulation  of  business  facts  by  means 
of  censuses  conducted  by  the  government,  all  of  which  have 
been  proposed,  and  some  of  which  are  already  under  way,  the 


DISTRIBUTION 


II 


hope  of  a  science  of  distribution  of  goods  stands  a  chance  of 
realization  in  the  near  future. 

Solving  the  Distribution  Problem. — In  conclusion,  the  dis- 
tribution of  goods  constitutes  a  problem  whose  importance  has 
only  recently  come  to  be  felt.  In  view  of  the  advanced  de- 
velopment of  other  industrial  lines,  it  may  not  be  too  much 
to  say  that  it  is  the  biggest  economic  problem  confronting 
the  people  of  this  country  at  the  present  time.  It  presents 
itself  to  the  public  in  three  different  ways:  First,  it  is 
desirable  that  those  who  are  to  enter  this  field  of  work  should 
be  properly  trained  for  performing  their  services.  Second, 
careful  studies  need  to  be  made  to  determine  the  most  eco- 
nomical routes  through  which  the  goods  may  be  transferred 
from  the  producers  to  the  consumers.  Third,  in  the  inter- 
ests of  ultimate  good  to  the  consumers,  fair  practices  in  trad- 
ing must  be  promoted,  and  efficiency  encouraged. 

In  the  following  pages,  one  link  of  the  distributing  sys- 
tem— retailing — will  be  examined  and  described  in  the  light 
of  these  three  viewpoints. 


THE  DISTRIBUTIVE  SYSTEM 


13 


i(l 


CHAPTER  II 

THE  DISTRIBUTIVE  SYSTEM 

The  Retail  Store. — The  retail  store  or  shop  in  some  form 
or  other  exists  in  every  civilized  land.  Wherever  the  buy- 
ing and  selling  of  commodities  is  carried  on  continuously, 
there  spring  up  the  necessary  buildings  and  equipments  that 
we  visualize  whenever  we  think  of  retailing.  The  form 
and  development  of  the  business  carried  on  in  retail  stores 
have  changed  remarkably  since  the  beginnings  of  such  trade. 
A  study  of  this  development  would  be  not  only  interesting  but 
fruitful  in  understanding  the  present  retailing  institutions. 
Such  a  study  must  in  the  present  case  be  omitted  except  for 
a  few  general  statements. 

The  First  "Shops." — In  England  the  retail  store  is  known 
as  a  "shop,"  and  this  term  indicates  its  origin.  A  thousand 
years  ago  there  were  no  retail  stores  in  England  such  as 
there  are  today.  Every  home  was  practically  self-sufficing, 
especially  as  to  material  needs.  The  food,  the  clothing,  and 
the  rude  implements  used  were  all  made  or  prepared  in  the 
homes.  The  room  or  the  outlying  building  in  which  things 
were  made,  was  called  the  shop.  As  time  went  on,  it  was 
found  more  profitable  for  some  members  of  a  community 
or  village  to  give  their  attention  to  one  thing  only,  as  for 
example,  the  spinning  of  yarns,  the  weaving  of  cloth,  the 
making  of  shoes,  the  production  of  hats,  and  the  shaping  of 
iron  and  copper  into  tools  or  utensils.  The  surplus  products 
prepared  by  these  early  specialists  were  traded  for  the  prod- 
ucts of  others;  thus  each  got  for  consumption  a  share  of  the 

12 


products  of  all  in  return  for  production  of  some  one  thing 
for  all. 

There  were  at  this  stage  no  middlemen.  Each  man  with 
a  product  to  dispose  of  hunted  up  a  man  who  had  a  product 
to  sell,  or  waited  for  someone  to  come  to  his  shop  who  wanted 
to  make  a  trade.  The  weaver  who  wanted  meat  took  his 
cloth  to  the  home  of  the  cattle  raiser,  and  the  shoemaker  who 
wanted  clothes  for  himself  and  family  traded  his  shoes  to  the 
weaver  and  tailor  in  return  for  their  handiwork.  In  this 
earliest  type  of  exchange,  the  consumer  and  producer  came 
together  in  every  transaction.  The  ordinary  place  where  the 
transactions  were  made  vv^as  either  the  village  market — usually 
some  central,  open  space  to  which  all  who  wanted  to  get  or  to 
dispose  of  goods  came  regularly  on  certain  days — or  the  homes 
or  shops  of  the  people.  To  go  about  from  one  workshop  to 
another  in  search  of  an  article  wanted  was  to  *'go  a-shopping." 

Advent  of  the  Middleman. — Later,  some  producers,  who 
may  have  been  too  busy  to  go  out  to  hunt  customers  or  who 
did  not  have  any  liking  or  ability  for  the  marketing  phase  of 
their  work,  began  to  turn  their  products  over  to  other  pro- 
ducers to  market  for  them.  These  goods  were  usually  stored 
in  the  shops  of  the  latter  to  await  the  calls  of  customers,  and 
it  was  only  a  matter  of  development  over  a  few  years  when 
a  number  of  these  found  that  selling  the  goods  intrusted  to 
them  took  up  so  much  of  their  time  and  proved  so  profitable 
that  they  gave  up  making  goods  on  their  own  account  and 
spent  all  of  their  time  in  marketing  goods  other  people  had 
made.  Thus  their  shops,  which  had  formerly  been  work- 
shops, now  became  sales  and  store  rooms,  but  the  name  clung 
to  the  establishments. 

Rise   of   Specialty   Stores. — There   developed   out   of   the 
conditions  of  the  handicraft  stage  a  great  number  of  one 


14 


ECONOMICS  OF  RETAILING 


line  or  specialty  shops  generally  located  in  the  building  that 
also  served  as  the  home  of  the  family,  as  for  example,  in  the 
cellar,  or  ground  floor ;  and  consequently,  to  this  day  it  is  the 
custom  in  England  and  other  European  countries — much  more 
generally  than  is  the  case  in  this  country — for  merchants  to 
live  in  upper  floors  over  their  stores.  Each  kind  of  goods 
tended  to  be  handled  by  a  separate  dealer ;  so  there  were  found 
Hnen  drapers,  wool  drapers,  silk  drapers,  leather  dressers, 
saddle  makers,  shoemakers,  iron  mongers,  brass  mongers, 
copper  goods  dealers,  grocers,  fruiterers,  pepperers,  fishmon- 
gers, and  so  on. 

Foreign  Trade — The  First  Merchants. — The  importation  of 
goods  from  other  lands,  such  as  silks,  spices,  fruits,  and 
jewelry,  contributed  additional  classes  of  shops.  As  trade 
in  a  shop  expanded,  and  as  the  owner  became  more  wealthy,  it 
was  customary  for  him  to  employ  his  surplus  capital  and 
energy  in  some  sort  of  merchandising  venture.  In  seven- 
teenth century  England,  the  following  procedure  was  general : 
The  merchant  would  buy  up  a  cargo  of  English-made  goods, 
send  them  abroad,  trade  them  for  other  goods,  and  return 
with  these  to  England  where  they  could  usually  be  sold  at 
a  good  profit.  However,  there  were  great  dangers  in  those 
days  of  a  ship's  never  coming  back.  While  the  profits  were 
good,  the  risks  were  great.  To  reduce  the  risk  of  the  in- 
dividual merchant,  organizations  known  as  merchants  stock 
companies  were  formed  to  finance  a  number  of  ships.  In  this 
way  it  became  possible  for  a  merchant  to  have  his  wealth  in- 
vested in  several  ships,  instead  of  all  of  it,  or  a  large  part  of 
it,  in  a  single  vessel.  If  a  ship  were  lost,  its  owner,  if  an 
individual,  would  be  ruined,  but  if  it  was  but  one  of  a  fleet 
owned  by  a  company,  the  loss  on  any  particular  member  was 
not  so  heavy  or  important  as  permanently  to  cripple  him 
financially. 


THE  DISTRIBUTIVE  SYSTEM 


15 


These  early  companies  were  known  as  the  merchant  ad- 
venturers' companies.  For  two  hundred  years  or  more,  these 
were  among  the  most  remarkable  business  organizations  that 
existed.  They  were  the  forerunners  of  the  hiodern  cor- 
poration, of  modern  insurance  and  risk-taking  concerns,  and 
of  modern  wholesale  houses.  With  the  growth  of  these  com- 
panies began  to  arise  a  distinction  in  the  use  of  the  word 
"merchant."  Only  those  who  engaged  in  foreign  trade  on 
a  large  scale  were  so  called,  while  inland  dealers  were  simply 
called  tradesmen  and  shopkeepers.  This  limited  use  of  the 
word  merchant  prevails  to  the  present  day  in  England  to  a 
considerable  extent. 

The  period  of  the  merchant  adventurers'  companies 
marked  the  beginning  of  England's  supremacy  as  a  trading 
nation,  and  her  success  in  this  line  gained  for  her,  not  in- 
appropriately, the  title,  "a  nation  of  shopkeepers.' 


"1 


Merchandising  Organization. — The  collection  and  exporta- 
tion of  the  products  of  England,  and  the  distribution  of  im- 
ported goods  over  the  island,  called  for  extensive  merchandis- 
ing organization.  The  large  warehouses  established  in  the 
seaport  towns  were  the  prototypes  and  forerunners  of  the 
modern  wholesale  house.  All  inland  transportation,  other 
than  by  boat  on  the  rivers,  was  by  wagon  and  horseback.  In 
the  early  part  of  the  eighteenth  century  several  of  the  great 
foreign-trade  merchants  not  only  had  large  sales  warehouses 
in  the  seaboard  cities,  but  also  great  trains  of  wagons  and 
pack  animals  which  were  used  in  gathering  up  the  grain,  wool, 
woolen  cloth,  and  other  textile  fabrics  that  England  pro- 
duced and  for  which  she  was  famed  the  world  over,  and  in 
delivering  silks,  spices,  wines,  metal  goods,  and  novelties  that 


^A  term  credited  to  Napoleon  Bonaparte,  spoken  of  the  English  in  derision;  also 
used  by  Adam  Smith,  "Wealth  of  Nations,"  Book  IV,  Ch.  VII,  pt.  3;  and  by  Dean 
Tucker  in  a  tract  published  in   1766. 


i6 


ECONOMICS  OF  RETAILING 


THE  DISTRIBUTIVE  SYSTEM 


17 


had  been  imported  from  abroad  and  which  were  sold  to  the 
httle  shops  found  in  every  village. 

The  great  merchant  trading  concerns  not  only  gathered 
up  the  products  offered  for  sale  in  every  little  hamlet  of  Eng- 
land and  transported  them  to  the  seacoast,  but  also  stored, 
shipped,  sold,  and  bought  both  in  foreign  and  domestic  mar- 
kets, and  assumed  all  risks  connected  therewith.  Further- 
more, they  sold  from  their  warehouses  to  tradesmen  who  came 
to  them,  and  also  in  wholesale  lots  to  all  comers  at  the  great 
fairs  that  were  then  held  periodically  at  various  places  in 
England  and  to  which  gathered  traders,  producers,  and  con- 
sumers. These  great  merchants  also  granted  credit  to  the  shop- 
keepers, and  advanced  funds  to  the  producers,  often  long 
before  the  delivery  of  the  products.  Their  systems  provided 
for  performing  most  of  the  work  now  carried  on  under  the 
names  of  importing  and  exporting,  wholesaling,  transporting 
both  by  land  and  water,  insurance,  banking,  and  storage,  as 
well  as  finding  buyers  and  sellers  for  the  goods  in  which  they 
dealt.' 

Effect  of  Industrial  Revolution. — When  the  industrial  revo- 
lution began  in  the  latter  part  of  the  eighteenth  century  and 
factory  production  commenced  to  take  the  place  of  the  old 
shop  handicraft  methods,  the  channels  of  distribution  for 
factories  through  wholesalers  and  retailers  were  already  fairly 
well  developed.  All  that  was  needed  was  an  extension  of 
these  channels  to  provide  for  the  greater  volume  of  goods 
made  available  for  markets  by  the  machine  processes. 

Beginnings  of  Wholesaling. — Wholesaling  proper,  apart 
from  the  importing  and  exporting  business,  came  into  existence 
with  factory  and  large  scale  production.  It  was  absolutely  im- 


2  Defoe  in    "The    Complete    English    Tradesman"    (1726),   pages   388-407,    describes 
very  clearly  and  fully  the  systems  of  distribution  existing  in   England  at  that  time. 


possible  after  the  introduction  of  modern  machinery,  for  the 
producer  himself  to  go  out  to  find  markets  for  his  goods. 
Either  he  must  employ  a  selling  organization  of  his  own, 
or  sell  his  product  to  middlemen.  Both  methods  were  fol- 
lowed early  in  the  development  of  the  factory  system.  It  w^as 
said  to  have  been  a  common  sight  on  England's  roads  to  see  a 
train  of  pack  animals  or  of  big  heavy  wagons  loaded  with  cot- 
ton and  woolen  cloths  setting  out  to  find  shopkeepers  who  would 
buy  their  season's  stocks  therefrom.  As  the  managers  of 
these  trains  sold  the  finished  goods,  they  also  bought  raw 
wool  in  every  place  where  it  could  be  had  and  accumulated 
a  load  for  the  return  to  the  factory.  Later  it  was  found  more 
profitable  to  send  out  men  on  horseback  or  in  carriages  with 
samples  to  show  to  shopkeepers  and  to  take  orders  to  be 
delivered  from  wagons  to  follow.  Thus  originated  the  cus- 
tom of  sending  out  traveling  salesmen  or  commercial  travelers 
in  England.  Large  numbers  of  **bagmen"  or  "chapmen,"  as 
they  were  called,  were  traveling  England  by  the  opening  of 
the  nineteenth  century. 

Wholesale  Methods. — In  finding  markets  wholesalers  fol- 
lowed practices  identical  with  those  of  the  big  producers. 
Specializing  on  marketing,  building  up  an  established  trade, 
granting  credit  to  retailers,  and  making  advances  to  needy 
manufacturers,  these  wholesalers  gradually  became  more  suc- 
cessful in  marketing  than  the  manufacturers  who  did  their 
own  distributing.  By  the  end  of  the  eighteenth  century, 
nearly  all  of  the  textiles  sold  in  England  were  distributed 
through  wholesalers,  while  those  going  abroad  were  handled 
by  the  exporting  firms.  The  importing  and  exporting  busi- 
ness had  grown  to  large  proportions  and  had  also  become 
specialized;  the  inland  trade  formerly  carried  on  by  the 
early  merchant  traders,  whose  work  we  have  described,  had 
gradually  been  taken  over  by  the  wholesalers. 


i8 


ECONOMICS  OF  RETAILING 


THE  DISTRIBUTIVE  SYSTEM 


19 


The  channels  of  trade  developed  rapidly  but  not  at  all 
systematically.  Many  wasteful  methods  were  involved. 
During  the  eighteenth  century,  it  was  not  uncommon  for 
goods,  such  as  woolen  cloth,  to  go  through  as  many  as  ten 
hands  in  passing  from  the  producer  to  the  consumer.  Fac- 
tors, brokers,  carriers,  great  wholesalers,  small  wholesalers, 
merchants,  and  retailers  multiplied;  and  strange  as  it  may 
seem  to  people  of  today,  this  was  held  to  be  a  good  thing  for 
England.  In  the  early  part  of  the  century,  Defoe  expressed 
the  current  view  as  follows: 

"The  greater  the  number  of  hands  through  which  goods 
pass,  the  greater  public  advantage  it  is  to  the  country  it  is 
carried  on  or  managed  in;  and,  therefore,  it  is  not  always 
the  true  interest  of  a  manufacturer  in  this  or  that  particular 
place,  to  shorten  or  lessen  the  needful  expense  of  trade  though 
it  should  render  the  goods  something  the  cheaper  at  market."^ 

The  American  colonies  copied  English  methods  quite 
closely.  The  importer  was  the  real  "merchant"  and  he  served 
as  the  wholesaler  as  well,  until  American  manufactures  began 
to  be  established  on  a  large  scale,  which  was  not  until  after 
the  War  of  18 12- 18 14.  Up  to  the  time  of  the  Civil  War, 
practically  all  wholesalers  were  importers  also. 

The  organized  system  of  distribution  as  it  existed  up  to 
i860  included  importers,  who  supplied  foreign-made  goods; 
brokers,  who  marketed  the  products  of  the  New  England 
textile  mills;  wholesalers,  who  were  sometimes  importers  as 
we  have  seen,  and  who  otherwise  purchased  from  importers, 
brokers,  commission  men,  and  from  producers  direct;  and 
retailers. 

Pre-Civil  War  Selling  Methods.— There  were  few  com- 
mercial travelers  before  the  Civil  War.  Retailers  ''went  to 
market"  to  buy;  that  is,  they  visited  the  wholesaling  centers — 

'Defoe,  "The  Complete  English  Tradesman,"  pages  109,  110. 


Boston,  New  York,   Philadelphia,  Baltimore,   Chicago,   Cin- 
cinnati,' St.  Louis,  or  New  Orleans— twice  a  year.     It  was  the 
custom  to  order  at  one  time  enough   stock  to  last  for   six 
months,  generally  on  from  six  to  eight  months'  time.     Losses 
due  to  bad  debts  were  frequent,  but  the  margins  of  profit 
were  usually  ample  to  cover  such  shortages.     The  panic  of 
1837,  however,  caused  several  wholesale  and  importing  con- 
cerns, as  well  as  other  business  concerns,  to  go  into  bankruptcy 
because  of  inability  to  collect  their  accounts.     This  experi- 
ence resulted  in  their  taking  more  care  in  the  granting  of 
credit  than  had  previously  been  customary.     Systematic  ef- 
forts were  thereafter  made  by  some  of  the  larger  concerns 
to  learn  about  the  financial  standings  of  their  customers.     Men 
were  sent  out  on  the  road— the  first  commercial  travelers  in 
this   country— to   visit   the   retailers   periodically,   learn   how 
they  were  getting  along,  collect  moneys  due,  extract  settle- 
ments from  delinquents,  and  to  make  friends  for  the  wholesale 
house  among  those  not  already  customers.     These  men  sold 
little  or  no  goods  as  a  rule  and  the  system  proved  to  be  most 
expensive  and  one  that  only  the  largest  concerns  could  afford. 
The  opportunity  for  a  new  kind  of  business  enterprise  had 
arisen,  namely,  the  mercantile  agency. 

Founding  of  Dun's  and  Bradstreet's.— Shortly  after  the 
panic  of  1837,  a  Mr.  Church  established  in  New  York  a  bureau 
of  credit  information  whose  purpose  it  was  to  serve  whole- 
salers who  desired  information  concerning  out-of-town  mer- 
chants ])uying  from  them.  About  1840  the  first  mercantile 
reference  book  was  issued.  The  first  mercantile  agency  was 
established  in  184 1  by  Lewis  Tappan  in  New  York.  A  second 
was  established  in  1842  under  the  name  of  Woodward  and 
DusenlDury.  The  Bradstreet  Company  was  founded  in  1849 
by  T.  M.  Bradstreet,  who,  as  a  salesman  previous  to  1849,  had 
collected  a  r-reat  deal  of  information  about  his  own  customers. 


* 

I 


20 


ECONOMICS  OF  RETAILING 


faSV  n'  '^T'k'^-  ^-  °""  '"'^  ^°"P^">'  <^^-^  -to  existence, 
takmg  over  the  business  built  up  by  Lewis  Tappan.     Othe; 

keen,  but  the  two  last  named  are  now  practically  alone  in  the 
field  of  general  mercantile  agencies.     To  a  certain  extent  spe 

Snc^es""""   "'    "^"""^'   ''   ^P^-'    credit-reporrg 

The  Mercantile  Agency.-The    mercantile    agency    is    a 
purely  Amencan  mstitution.     No  country  in  Europe  has  any- 
th  ng  hke  .t.     In  England,  banks  furnish  their  customers  wi  h 
.nformat,on  concerning  the  standing  of  parties  in  trade,  but 
m  th.s  country  the  development  of  this  function  among  banks 
was  next  to  .mpossible.     In  the  first  place,  banks  were  failing 
suspendmg  specie  payments,  and  were  subject  to  great  sus- 
p.c.on  at  the  times   when   the   desire   for  mercantile  credit 
information  was   strongest,   namely,   during  and  after   the 
panics  of  :837,   1843.  and   1857.     The  country  had  grown 
so  rapidly  ,n  trade,  and  particularly  in  the  extent  of  territory 
over  which  this  trade  was  transacted,  that  the  small  banks 
of  the  wholesale  centers  of  the  time  had  neither  the  incentive 
nor  the  ability  to   keep  track  of  commercial  conditions  in 
such  a  way  as  to  be  of  real  service  to  the  commercial  interests 
01  the  country. 

Another  reason  why  the  banks  of  this  country  did  not 
develop  the  credit  information  function  for  their  wholesalers 
was  that  there  was  no  central  bank  through  which  such  in- 
formation could  be  collected  for  the  whole  country  and 
transmitted  to  the  places  where  it  was  needed.  Thus  the 
mercantile  agencies  came  into  successful  existence. 

Opposition  to  Agency  Methods.-Naturally  there  was  con- 
siderable  opposition  to  the  methods  of  the  mercantile  agencies 
It  was  considered  as  an  imposition  by  many  retailers  to  have 


The  distributive  system 


21 


a  third  and  outside  party  prying  into  their  business  affairs. 
Every  attempt  to  get  information  directly  by  these  concerns 
was  opposed  by  large  numbers  of  business  men.  Magazine  and 
newspaper  articles  were  written  against  the  system.  Even 
as  late  as  1896  a  book  entitled  "The  Mercantile  Agencies 
Against  Commerce:  Are  We  a  Nation  of  Swindlers  and 
Liars?"  appeared,  written  by  W.  Y.  Chinn,  violently  op- 
posing the  agencies.  This  spirit  has  now  largely  passed 
away.  Antagonism  towards  the  agencies  has  been  largely 
replaced  by  confidence.  A  great  number  of  merchants  today 
furnish  the  mercantile  agencies  with  signed  statements  show- 
ing the  exact  condition  of  their  respective  businesses.* 

Development     of     Present-day     Selling     Methods. — The 

present-day  practice  of  sending  out  traveling  salesmen  to 
solicit  trade  from  retailers  seems  to  have  originated  in  two 
ways.  As  has  already  been  indicated,  the  "commercial 
travelers"  who  were  sent  out  by  wholesale  houses  to  ascertain 
the  financial  conditions  of  customers  and  to  make  collections, 
began  to  take  orders  for  goods  as  part  of  their  regular  duties. 
There  was  another  type  of  employee  in  the  early  wholesale 
houses  whose  work  finally  grew  into  traveling  salesmanship — 
the  "drummer."  The  drummer,  at  first,  was  employed  by 
wholesale  houses  to  hang  around  hotels  and  watch  for  the 
arrival  of  retail  merchants  from  out  of  town.  When  a  mer- 
chant arrived  he  became  the  special  recipient  of  every  kind  of 
appeal  to  get  him  to  come  to  the  house  represented  by  the 
drummer  to  do  his  trading.  "The  country  merchant  is  booked 
on  his  arrival,  is  captivated  by  courtesy,  is  attracted  by  appeals 
to  each  of  his  appetites  and  passions,  is  coaxed,  decoyed,  and 
finally  ensnared  or  captured.' 


"5 


J  ^5^'^''^^»V  ^;  ^•'  3^°?"  *°  V"^^'"  pages  295-304;  Boulter,  J.,  Mercantile  Agencies 
and  Their  Work,  in  Trade  and  Commerce,"  pages  372-394;  Masterson,  E  D  The 
J  lercantile  Agency,  in  "Modern  Merchandising,"  Vol.  VI,  pages  87-92-  Bankers' 
Magaziyie   (1858),   12:545;  Hunt's  Merchants'  Magazine  (1851)     24-46 

'  Freedley,  E.  T.,  "United  States  Mercantile  Guide"  (1856),  page  204 


22 


ECONOMICS  OF  RETAILING 


Later,  as  competition  among  the  wholesalers  grew  keener, 
the  drummer  was  sent  out  to  see  retailers  in  their  home 
towns,  to  get  their  promise  to  come  to  the  house  when  in  the 
market,  and  to  take  orders  whenever  possible.  As  the  prac- 
tice of  small-town  merchants  going  to  market  periodically 
decreased,  the  work  of  selling  to  the  retailer  in  his  own  store 
or  home  became  more  and  more  important.  Today,  a  very 
large  part  of  the  business  between  retailers  and  wholesalers  is 
transacted  through  the  medium  of  traveling  salesmen. 

As  early  as  i860  a  number  of  traveling  salesmen  were 
employed  by  wholesale  houses  in  New  York,  Chicago,  Cin- 
cinnati,  and   other  jobbing  centers.^     After   the    Civil    War 
their    number    increased    very    rapidly.     Chicago    wholesale 
houses  sent  their  representatives  out  over  the  Western  prairies, 
beyond  the  terminals  of  railroad  and  steamboat  navigation.' 
Traveling  salesmen  with  their  trunks  loaded  on  wagons  fol- 
lowed the  pioneer  trails  to  mining  camps,  lumber  camps,  trad- 
ing posts,  and  everywhere  that  a  store  existed.     Some  of  them 
drove  across  the  mountains  to  Utah  and  even  to  the  Pacific 
Coast.     Chicago's   supremacy   over    St.    Louis   as    a    whole- 
sale center  was  largely  due  to  this  early  hustling,  and  the  Eas- 
tern drummer  in  the  Northwe.c  was  declared  to  be  a  thing  of 
the  past  in  a  statement  made  in  the  Chicago  Tribune  Annual 
Review  of  Trade  and  Commerce  for  1869. 

Results  of  the  Traveling  Salesman  System.— With  the  be- 
ginning of  this  system,  short  credits  gradually  displaced  long 
credits,  and  the  discount  for  cash  began  to  be  generally 
adopted.  Frequent  visits  of  the  salesmen  made  it  possible  to 
order  in  smaller  lots ;  hence  merchants  were  able  to  keep  a  much 
wider  variety  of  goods  and  to  follow  the  changes  in  fashion 
more  easily.     By  the  introduction  of  this  new  system  of  retail 

Y.^:TL^^^t^li'^.i^:^^^,:i^   Y--  -   t^e   Road."    Ch.   II; 


THE  DISTRIBUTIVE  SYSTEM 


23 


store  buying  it  was  made  possible  for  great  masses  of  the 
people  to  satisfy  their  desires  for  fashions  in  a  way  that  had 
never  before  been  possible.  Henceforth  the  problem  became, 
not  whether  fashion  was  to  change  or  not,  but  rather  how 
soon  it  was  to  change.  Whether  for  good  or  evil,  the 
length  of  time  formerly  interposed  between  production  and 
consumption  was  generally  reduced.  Not  only  did  this  make 
frequent  changes  in  fashion  possible,  but  it  opened  the  way 
to  the  later  development  of  large-scale  production  of  perish- 
able goods,  foodstuffs,  and  so  on.  Some  of  the  most  re- 
markable developments  in  the  distributive  system  during  the 
last  twenty-five  years  have  been  the  adaptations  in  methods 
made  to  facilitate  very  rapid  distribution  over  wide  territory. 

Growth  of  the  Retail  Stores. — The  development  in  this 
country  of  the  retail  store  and  its  selling  methods  is  fully  as 
interesting  as  that  of  the  wholesale  house.  In  nearly  every 
large  center,  the  earliest  store  was  a  trading  post,  where  furs 
were  purchased  from  the  Indians  and  trappers,  and  goods  of 
various  kinds  given  in  exchange.  The  trading  post  was  fol- 
low^ed  by  the  general  store,  a  type  that  is  still  found  in  a 
great  many  country  towns.  The  general  store  is  perhaps  the 
most  typical  American  development  in  merchandising  institu- 
tions, since  very  few  like  it  are  to  be  found  anywhere  else 
in  the  world.  The  old-time  general  store  distributed  dry- 
goods,  hardware,  groceries,  drugs,  and  even  liquors.  It  was 
frequently  the  location  of  the  post-office,  and  served  as  the 
village  social  center  for  the  men.  The  old  box  stove,  the 
rickety  chair  or  two,  the  near-by  barrels,  and  the  sawdust 
spit  box,  w^ere  the  almost  universal  furnishings  that  e. quipped 
it  for  its  social  services.  Here  politics,  religion,  and 
neighbors  were  discussed.  It  may  not  be  too  much  to  say 
that  here  the  tariff  question,  the  government  bank,  internal 
improvements,  foreign  policies,  and  other  important  govern- 


24 


ECONOMICS  OF  RETAILING 


ment  matters  were  ultimately  settled.  Certainly  statesmen 
had  to  reckon  with  the  forces  of  public  opinion  generated  and 
cultivated  around  the  stove  of  the  country  store.  With  all  its 
inefficiency,  its  wasteful  methods,  and  its  shortcomings,  as  a 
retail  establishment,  it  must  be  said  that  it  successfully  served 
its  day  as  probably  no  other  type  of  institution  could.  Many 
general  stores  still  exist  and  will  for  years  to  come.  But 
with  increasing  density  of  population  and  a  rising  standard 
of  living,  the  general  store  as  such  must  give  way  to  other 
types  of  retailing  institutions. 

Types  of  Stores.—The  specialty,  or  one-line,  store  repre- 
sents the  next  stage  in  the  development  of  retailing  in  this 
country.  When  the  demands  of  the  people  of  the  villages 
became  numerous,  when  the  variety  of  goods  offered  in  the 
general  merchandise  store  became  unsatisfactory,  then  came 
the  one-line  specialty  store— the  drug  store,  hardware  store, 
agricultural  implement  dealer,  dry-goods  store,  grocery  store, 
the  meat  market,  men's  furnishings  and  clothing,  and  so  on. 
Of  these  types  of  stores,  and  still  later  forms  of  retail  in- 
stitutions, such  as  the  department  stores  and  mail-order 
houses,  no  more  need  be  said  here.  Ample  space  is  given  to 
each  of  these  types  in  later  chapters. 

The  Modem  Distributive  System.— In  conclusion,  the 
modern  distributive  system  consists  essentially  of  two  middle- 
men between  producers  and  consumers — the  wholesaler  and 
the  retailer.  The  wholesaler  buys  in  large  quantity,  and  in 
wide  variety,  generally  from  many  prodacers,  assembles  these 
stocks,  stores  them  for  seasonal  demands,  oftentimes  sorts 
and  repacks  the  goods,  and  then  finds  the  customers  and  sup- 
plies them  with  suitable  quantities  at  suitable  times.  Credit 
relations  are  established,  the  importance  of  which  may  be 
inferred   from  estimates   of   the   average   amount   of   credit 


THE  DISTRIBUTIVE  SYSTEM 


25 


granted  to  retailers.  Such  estimates  run  from  $400,000,000 
to  $750,000,000 ;  that  is  to  say,  while  retailers  are  always  pay- 
ing up  their  debts  to  wholesalers,  their  purchases  in  advance 
of  payment  always  run  up  into  the  hundreds  of  millions  of 
dollars.  It  is  not  unusual  for  a  wholesale  concern  to  have  as 
many  as  25,000  or  even  more  customers'  accounts  upon  its 
books.  Thus,  in  addition  to  its  other  functions  already 
named,  the  wholesaler  is  a  great  accounting  and  credit  agency 
in  our  business  system. 

In  the  lines  he  handles,  the  retailer  assembles  the  goods 
of  his  particular  community.  In  his  store  he  keeps  these 
goods,  presumably,  in  cleanly  condition,  preserved  from  ex- 
tremes of  heat  and  cold,  from  decay,  from  fire,  and  other 
forms  of  destruction  to  which  all  goods  are  subject.  He 
demonstrates  or  shows  the  consumer  how  the  goods  are  to 
be  used.  He  sells  and  generally  delivers  them.  Taking  the 
country  as  a  whole,  the  retailer  likewise  extends  an  enor- 
mous amount  of  credit  to  his  customers. 


Channels  of  Distribution. — Distributing  goods  through 
wholesaler  and  retailer  may  be  called  the  customary  or  regular 
channel  of  distribution.  From  this  method  there  are  many 
variations.  In  some  lines  there  are  more  than  these  two 
links,  while  in  others  the  two  have  been  concentrated  into  one. 
The  struggle  for  markets  among  producers  both  large  and 
small  has  tended  to  make  distribution  very  complex;  and 
where  competition  is  free  and  unchecked,  changes  from  one 
system  to  another  are  both  frequent  and  abrupt.  So-called 
eliminations  of  middlemen  have  proceeded  from  both  ends 
of  the  system.  Many  large  retailers,  such  as  the  department 
stores,  have  sent  their  buyers  direct  to  the  producers  to  pro- 
cure supplies,  while  many  of  the  producers  have  gone  direct 
to  the  retailers  and  even  to  the  consumers  with  their  goods. 
There  has  been  a  good  deal  of  experimenting  and  some  chang- 


26 


ECONOMICS  OF  RETAILING 


MANUFACTURfR 


PRODUCER 


WHOLESALER 


MANUfAaURtR 


LOCAL  BUYER 


RETAILER 


WHOLESALER 


COMMISSION  MAN 
OR  WHOLESALER 


CONSUMER 


RETAILER 


RFTAILER 


CONSUMER 


CONSUMER 


GROCERIES 


FARM  PRODUaS 


LIGHT  HARDWARE 


MANUFACTURER 


I 


RETAILER 


JOBBER 


RETAILER 


L    CONSUMER 


MANUFAQURER 

(- 

JL 

n 

RETAILER 

AGENCY 

L 

1 

■|  r 

CONSUMER 

HEAVY  HARDWARE 


Silverware 


The  Channels  of  Distribution  for 


THE  DISTRIBUTIVE  SYSTEM 


MANUFACTURER 


MANUFACTURER 


LARGE  RETAILER 


JOBBER 


L 


RETAILER 


RETAILER 


•-    CONSUMER    -• 


CHAIN  STORE 


CONSUMER 


DRUGS 


SHOES 


MANUFAaURER 


GEN'L.  AGENT 


BLOCKMEN 


1 


RETAILER 


CANVASSERS 


CONSUMER 


HARVESTING  MACHINERY 


Various  Lines  of  Goods 


2; 


JOBBER 


RETAILER 


1 ' 


28 


ECONOMICS  OF  RETAILING 


MANUFAQURER 


JOBBER 


r 


COMMISSION 
HOUSES 


RETAILER 


BROKER 


JOBBER 


1 


DEPARTMENT 
STORE 


COMMISSION 
HOUSES 


RETAILER 


JOBBER 


RETAILER 


CONSUMER 


CLOTHING 
MANUFACTURER 


TEXTILES 


6500 
PRODUCERS 

1 

1 

JOBBER 

17  DISTRICT 
EXCHANGES 

RETAILER 

CALIFORNIA  fRUIT 
GROWERS  EXCH. 

AUCTIONS 

BONDED  AGENTS 
IN  MARKET 

1 ' 

JOBBER 

JOBBER 

1 

RETAILER 

RETAILER 

rnwQi  lijtrn 

LUNoL 

/IVIl-K 

I 


co-operative:  fruit  marketing 

The  Channels  of  Distribution  for  Various   Lines    of    Goods — Continued 


THE  DISTRIBUTIVE  SYSTEM 


29 


ing  back  and  forth.  Not  all  changes  have  been  made  in  the 
interests  of  economy.  Friction  with  present  systems  has 
been  not  the  least  among  the  causes  for  establishing  new  chan- 
nels in  many  cases.  As  an  illustration  of  the  number  of 
methods  of  distribution  employed  by  large  producers,  it  is 
a  fact  that  out  of  102  concerns  doing  national  advertising,  17 
sell  to  jobbers,  18  to  retailers,  11  through  agencies,  and 
8  to  consumers  direct;  29  sell  to  both  jobbers  and  retailers, 
13  to  retailers  and  through  agencies,  4  to  jobbers,  retailers, 
and  through  agencies,  i  to  both  consumers  and  retailers,  and 
I  to  jobbers,  retailers,  and  consumers.^ 

A  clear  idea  of  the  customary  channels  of  distribution  in 
the  main  lines  of  trade  passing  from  the  producer  to  the  con- 
sumer through  retail  stores,  can  be  obtained  from  the  charts 
presented  on  the  preceding  pages. 


»  Printers'  Ink,  September  12,  1912. 


CHAPTER  III 

THE  CONSUMER 

The  Store  and  the  Consumer.— The  function  of  the  retail 
store  is  to  provide  its  customers  with  the  goods  they  want- 
when,  where,  and  how  they  want  them.  Efficiency  in  re- 
taihng  consists  in  furnishing  this  service  satisfactorily  and 
economically.  This  service  must  be  satisfactory  to  the  con- 
sumer in  order  to  gain  his  good-will,  and  it  must  be  economical 
in  order  that  it  may  not  cost  the  consumer  any  more  than  is 
necessary.  Under  competition  the  concerns  that  can  perform 
this  service  most  economically  are  able  to  reap  the  greatest  net 
profits.  Progress  in  retailing  should  lead  continually  to  bet- 
ter and  better  service  at  relatively  lower  costs. 

Power  of  the  Customer.— In  planning  the  work  of  a  store 
it  must  be  borne  in  mind  continually  that  the  consumer  is  the 
party  that  ultimately  determines  what  shall  and  what 
shall  not  be  in  the  retailing  as  well  as  in  the  entire  busi- 
ness system.  What  may  at  one  time  and  in  one  way  seem 
very  satisfactory  and  most  economical  to  the  retailer,  may  not 
be  satisfactory  at  all  to  the  consumer  and  cannot  therefore 
result  in  success.  It  may  be  said,  perhaps,  that  the  best-planned 
system  of  retailing  from  a  theoretic  standpoint  might  not 
be  suitable  for  a  given  community  or  even  for  any  part  of  the 
whole  country,  simply  because  consumers  as  a  class  may  not 
be  ready  to  appreciate  it  as  such.  There  must  be  development 
on  both  sides  in  order  that  the  system  of  distribution  may 
progress.     The  consumers'  point  of  view  is  fundamental.     It 

30 


THE   CONSUMER 


31 


I 


1 


may  be  changed  and  is  constantly  changing,  but  unless  the  re- 
tailer is  able  to  make  his  business  accord  with  it,  he  stands 
little  chance  of  continuing  in  business.  In  fact,  it  may  be 
asserted  that  success  in  retailing  depends  entirely  upon  find- 
ing out  what  the  people  want  and  then  performing  that  service 
for  them  as  economically  as  possible. 

Consumers  and  Their  Demands. — Who  are  the  consumers? 
What  do  they  want? 

The  consumers  of  the  country  are  its  hundred  millions 
of  men,  women,  and  children.  What  they  want  depends 
upon  their  respective  ages,  sex,  habits — social  and  personal 
— and  their  occupations,  and  how  much  they  want  depends 
largely  upon  their  incomes  or  wealth. 

Under  most  circumstances,  demands  for  goods  come  only 
from  adults  or  persons  above  the  ages  of  childhood.  Par- 
ents select  goods  not  only  for  themselves  but  also  for  their 
children.  This  is  the  rule  the  world  over.  But  in  this  coun- 
try there  are  several  notable  exceptions.  Children  of  for- 
eigners learn  the  English  language  much  more  quickly  than 
their  parents,  hence  frequently  serve  as  interpreters  for  the 
family.  They  begin  to  read  the  English  advertising,  study 
the  goods  at  the  stores,  and  are  influenced  by  fashion  changes 
more  quickly  than  their  elders.  To  some  extent,  children 
thus  buy  or  influence  the  buying,  not  only  of  goods  for  them- 
selves, but  also  for  their  homes. 

Demand  Influenced  by  Scarcity  of  Children. — Among  the 
American  people  of  the  richer  classes,  the  birth  rate  of  children 
has  fallen  off  markedly  during  the  last  fifty  years,  and  this 
tendency  to  reduce  the  number  of  children  per  family  has 
probably  not  yet  reached  its  limit.  One  of  the  efYects  of  this 
tendency  of  interest  to  distributors  of  goods,  particularly  re- 
tailers, is  that,  as  there  become  fewer  children  per  family,  the 


32 


ECONOMICS  OF  RETAILING 


I 


attention  given  to  each  child  increases.  This  attention  takes 
two  forms,  first  to  supply  all  its  needs  and  demands  much 
more  completely  than  could  otherwise  be  possible,  and,  second, 
to  give  more  freedom  to  the  child  to  satisfy  its  own  de- 
mands. The  fewer  the  children,  the  more  the  money  for  each 
child  to  spend.  In  consequence,  children  of  native-born  par- 
ents especially,  begin  to  demand  and  to  buy  goods  of  a  great 
variety  at  an  early  age.  Children's  movements  such  as 
"Boy  Scouts,"  "Campfire  Girls,"  marble  playing,  baseball, 
roller-skating,  and  so  on,  sweep  over  a  town  with  remarkable 
rapidity,  simply  because  the  wherewithal  to  supply  the  neces- 
sary material  equipment  is  provided  to  the  child  by  its  par- 
ents when  wanted.  The  present  has  been  called  the  "age  of 
the  child,"  and  this  should  be  a  matter  of  significance  to  the 
retailer  in  making  his  plans.  The  store  must  be  arranged  to 
show  its  goods  in  a  way  to  appeal  to  the  age  of  people  who 
constitute  its  customers.  What  suits  one  age  may  not  suit 
another.  The  growth  of  the  influence  of  children  on  the  mar- 
kets and  merchandise  of  this  country  during  the  last  generation 
is  much  greater  than  is  generally  realized. 

Sex  as  a  Factor. — Sex  makes  a  great  deal  of  difference 
in  demand,  not  only  in  the  obvious  differences  in  the  goods 
used,  but  also  in  the  manner  in  which  the  goods  are  bought 
from  stores.  It  is  commonly  asserted  that  it  takes  more  time, 
and  that  it  is  harder  to  please  and  to  sell  to  women  than  to 
men.  It  is  probable  that  many  of  the  differences  that  have 
been  pointed  out  between  the  sexes  in  their  buying  habits  are 
exaggerated,  but  there  are  certainly  differences  that  need  to  be 

noted. 

A  generation  ago  women's  time  was  so  completely  taken 
up  with  the  household  industries  in  the  home,  many  of  which 
are  now  performed  in  factories,  that  they  had  very  little 
time  to  spend  in  shopping.     Then  men  did  practically  all  of 


THE  CONSUMER 


33 


the  buying  for  their  families.  Now  this  practice  is  quite  re- 
versed. Women  have  been  set  free  from  a  great  deal  of  the 
arduous  hand  labor  characteristic  of  the  past,  and  have  become 
purchasers  rather  than  producers  of  the  products  needed  in 
the  home.  It  has  been  estimated  by  a  number  of  people  that, 
at  the  present  time,  at  least  75  per  cent,  possibly  more,  of  the 
goods  used  in  the  home  are  purchased  by  women.  This  ap- 
plies not  only  to  goods  used  by  the  women  themselves  and 
by  children,  but  also  to  foodstuffs  and  house  furnishings. 
Even  men's  clothing,  particularly  furnishings,  are  now  pur- 
chased very  largely  for  them  by  women.  Tlie  woman  is  the 
purchasing  agent  for  the  home  in  an  increasingly  large  num- 
ber of  cases.  Retailing  in  all  lines  must  take  this  into  ac- 
count. 

Selling  to  Women. — Women  are  harder  to  sell  to  than 
men  because  as  a  rule  they  have,  or  think  they  have,  more 
time  to  shop  than  men  do.  Practice  in  looking  over  stocks 
of  goods  affords  them  much  real  enjoyment.  Most  women 
like  to  shop.  Only  a  few  men,  relatively  speaking,  enjoy 
shopping.  Women,  as  a  rule,  rely  more  on  their  own  senses 
and  less  on  brand  names  than  men  do  in  buying.  They  also 
read  descriptions  and  note  details  more  carefully.  The  strug- 
gle of  American  families  for  social  place  and  for  more  com- 
plete satisfaction  of  a  very  wide  variety  of  wants  causes  many 
women  to  think  more  of  the  pennies  than  men  do.  For  this 
reason,  sales  at  reduced  prices  mean  much  more  to  women 
than  to  men.  The  problem  of  making  a  little  money  go  a 
long  way  under  pressure  of  an  increasing  cost  of  living  is 
one  that  women  are  meeting  by  giving  more  and  more  care- 
ful attention  to  details  in  their  shopping.  Still  another  fac- 
tor to  be  considered  is  the  specific  instruction  now  being  given 
to  young  women  in  hundreds  of  schools  in  domestic  science, 
in  studies  of  textiles  and   foodstuffs.     Such  education  will 


I 


i 


34 


ECONOMICS  OF  RETAILING 


tend  to  make  women  still  more  critical  purchasers,  and  the 
retail  store  must  be  adapted  to  meet  this  development.^ 

Since  women  are  now  the  chief  customers  of  retail  stores 
in  practically  all  lines,  the  stores  must  seek  to  meet  women's 
standards  and  demands  rather  than  men's.  What  was  satis- 
factory to  men  in  the  past  is  not  wholly  satisfactory  to  women 
now.  Retailers  who  have  grasped  this  idea  and  have  made 
their  stores  conform  to  it  in  such  details  as  cleanliness,  fix- 
tures, lighting,  decorations,  display  of  goods,  and  personal 
service,  have  reaped  large  rewards,  while  those  who  have 
not  observed  these  changing  conditions  have  passed  out 
in  failure. 

Habits  of  Customers. — Habits  of  customers  are  exceed- 
ingly important  factors  in  determining  how  a  retail  store  shall 
be  carried  on.  We  may  distinguish  between  those  that  many 
people  possess  in  common  and  those  which  only  single  in- 
dividuals have.  The  first  may  be  called  social  habits,  customs, 
and  conventions,  and  only  the  latter  are  designated  simply  as 
habits.  Of  the  two  classes,  the  social  habits  are  most  im- 
portant in  laying  out  the  plan  of  a  store's  work  and  its  general 
policies.  The  latter  must  be  met  by  the  individual  salesman- 
ship of  the  retailer  and  his  clerks. 

Racial  Characteristics  of  Customers. — Customs  depend 
upon  race,  nationality,  and  community.  There  are  national 
foods,  drinks,  and  clothing.  There  are  types  of  architecture 
and  house  furnishings  that  are  peculiar  to,  or  at  least  originate 


1  Other  sex  differences  may  be  noted  briefly  as  follows:  Scientists  affirm  that 
women  are  less  often  color-blind  than  men.  It  is  asserted  that  a  woman  has  a  much 
w°d^r  range  of  vision  than  a  man  has.  With  her  eyes  fixed  straight  ahead  she  observes 
nersons  and  things  farther  right  and  left  than  men  do.  Women  excel  men  m  grasping 
the  meaning  of.  or  comprehending,  paragraphs.  "Women  go  in  ilocks.  and  in  social 
rnfttS-s  are  less  prone  to  stand  out  with  salient  individuahty.  They  are  more  emo- 
tTonal      altruisdc,^ntuitive,    less    judicial,    and    less    able    to    make    disinterested    a;id 

'"''''kmeJi^l^eT'in  memorv."  A  woman's  thoughts  are  more  concrete  and  are 
T^nri.  likelv  to  relate  to  practical  things  of  interest  to  herself.  Men  theorize  and 
generalize  more.     Out  of  483.517  patents  recorded  in  Washington  up  to  October.  1892. 


THE   CONSUMER 


35 


in,  certain  countries.  What  one  race  of  people  may  like,  an- 
other race  may  find  very  distasteful.  In  a  country  such  as 
the  United  States  where  all  races  are  found,  these  racial  and 
national  variations  constitute  a  big  problem  for  the  distributor. 
For  example,  it  is  said  that  the  French  people  eat  little 
or  no  cereal  for  breakfast.  For  them  breakfast  foods  have 
no  appeal.  Sour-tasting  foods  are  much  favored  by  the  Ger- 
mans. The  English  are  great  consumers  of  tea  and  crackers 
Olive  oil  or  imitations  of  it  are  much  in  demand  among  the 
people  from  South  Europe,  and  everyone  has  read  and  heard 
of  the  part  played  in  food  supply  by  beans  in  New  England, 
red  peppers  in  the  Southwest,  corn  bread  in  the  South,  pota- 
toes in  Ireland,  oatmeal  in  Scotland,  rice  in  Japan.  The  usual 
statements  regarding  the  use  of  these  foods  by  nations  are 
greatly  exaggerated,  but  the  kernel  of  truth  is  suggested  to 
the  retailer.  A  store  in  a  community  made  up  mostly  of  Ger- 
mans must  offer  a  somewhat  different  supply  of  goods  and 
furnish  a  somewhat  different  service  than  that  demanded  by 
people  in  communities  made  up  of  French,  English,  or  other 
nationalities. 

Community  Preferences.— Community  habits  are  of  more 
direct  significance  still.  The  resources  of  the  region,  the  de- 
velopment of  social  standards  of  consumption,  and  the  gradual 
unification  of  wants  according  to  the  classes  of  people  found 
in  the  community,  are  factors  making  for  definite  lines  of 
merchandising.  Country  districts  differ  from  small-town 
communities,  and  the  latter  from  large  towns  and  cities.  The 
relationship  of  the  store  to  the  community  in  each  case  is  somc- 

only  3,458  were  by  women.  Women  are  more  tactful  and  are  able  to  extricate  them- 
selves from  difficulties  more  readily  than  men.  "Old  women  are  likely  to  be  talkative, 
while  old  men  are  glum."  "Male  crime  to  female  is  as  6  to  i."  "She  is  about  as 
superior  to  man  in  altruism  as  she  is  behind  him  in  truth-telling,  being  more  prone  to^ 
ruse  and  deception." 

"Influence  and  suggestion  are  more  potent  than  argument  with  women.  They 
are  more  emotional,  blush  and  cry  easier;  and  are  more  often  hypnotized.  They  have 
more  sympathy,  pity,  charity,  generosity,  and  superstition." 

Hall,  G.   S.,   "Adolescence,"  Vol.   II,  pages  561-567. 


-"ffme^m-wv*  l  t_^ 


36 


ECONOMICS  OF  RETAILING 


what  different,  and  the  power  of  the  retailer  to  vary  the  con- 
ditions set  before  him  also  differs. 

Sectional  Styles. — Manufacturers  recognize  differences  in 
the  character  of  demand  in  various  parts  of  the  country.  "Met- 
ropolitan" and  ''western"  styles  are  two  distinct  classes. 
Groceries,  soaps,  and  so  on  are  put  up  in  certain  ways  for 
"southern  trade."  Maps  might  be  made  of  the  country  show- 
ing divisions  not  by  states  but  by  parts  of  the  country  where 
various  kinds  of  goods  are  consumed.  Thus  green  tea  areas 
would  be  found  largely  separated  from  black  tea  areas, 
mackerel-eating  areas  and  herring  areas,  and  so  on.  We 
should  be  able  to  locate  sauerkraut  areas,  corn-bread  areas  per- 
haps, extreme-styles  areas,  conservative-styles  areas,  carpet- 
using  areas,  rug-using  areas,  in  addition  to  areas  producing 
specific  products  used  very  largely  at  home.  In  the  big  cities 
of  the  East  white  eggs  are  considered  the  choicest,  while 
in  San  Francisco  brown  are  considered  most  valuable.  Com 
meal  must  be  somewhat  yellow  in  the  North,  but  white  in  the 
South.  The  extent  of  such  differences  and  their  effects  on 
distribution — matters  that  are  but  imperfectly  understood  at 
the  present  time — constitute  one  of  the  big  problems  of  the 
economical  distribution  of  goods. 

General  Consumer  Characteristics. — Notwithstanding  the 
differences,  there  are  a  sufficient  number  of  similarities  to 
warrant  some  general  statements.  For  example,  in  dealing 
with  the  subject,  "Consumers'  Fancies,"  a  writer  in  the  Year 
Book  of  the  U.  S.  Department  of  Agriculture  (1904),  page 
434  and  following,  called  attention  to  certain  factors  in  con- 
sumers'   demands    that    will    interest    retailers,    particularly 

grocers : 

"The  consumer  has  a  fondness  for  red,  white,  and  the 
colorless,   and   sometimes   for  yellow   when   reinforced  with 


THE   CONSUMER 


37 


large  size.  Gloss,  polish,  and  luster  are  wanted.  Things 
should  be  large,  and  when  applicable,  of  plump  appearance; 
they  should  be  uniform  in  size,  shapely,  and  with  ornamental 
lines.  A  convenient  and  showy  package  is  appreciated  and 
a  product,  trade,  or  producer's  name,  once  established  favor- 
ably, catches  the  fancy  of  customers  often  more  easily  and 
securely  than  anything  else." 

The  extent  of  demand  depends  not  only  upon  customs 
and  conventions,  but  also  on  spending  power.  Demand  is  like 
a  coiled  spring  under  pressure.  The  pressure  is  the  limit 
set  to  spending  by  the  limits  of  the  pocketbook.  But  the 
use  of  income  is  not  the  same  in  all  communities.  Much  de- 
pends upon  whether  the  families  own  their  homes  or  not, 
whether  they  are  secure  in  their  source  of  income  or  not,  and 
upon  the  prospects  for  future  prosperity  in  the  community. 
People  who  rent  their  homes,  as  a  rule,  spend  a  larger  shar2 
of  their  total  income  for  daily  needs  than  people  who  arc 
buying  and  paying  for  homes.  The  spirit  of  economy  is 
stronger  in  the  latter  case.  Prospects  of  future  plenty,  as 
for  example,  good  crops,  a  growing  or  booming  city,  incoming- 
industries,  and  other  evidences  of  community  prosperity,  tend 
to  cause  the  people  to  spend  more  freely  whatever  money  they 
may  have  than  is  the  case  under  indications  of  hard  times, 
retrograding  business,  and  so  on. 

Income;  Its  Relation  to  Demand. — General  statistics  of 
family  incomes  are  of  some  value,  although  when  applied 
to  any  given  locality,  they  need  to  be  qualified  to  suit  the 
peculiarities  of  that  locality.  The  table  on  page  39  was  pub- 
lished by  the  Bankers  Trust  Company,  New  York,  in  19 18, 
from  such  statistics  as  were  available.  It  is  probably  not  free 
from  error,  but  it  will  serve  the  purposes  of  this  chapter,  which 
is  merely  to  indicate  the  outlines  of  the  consumer  problem. 

The  total  income  of  $38,250,000,000  is  divided  among 


i 


38 


ECONOMICS  OF  RETAILING 


savings  and  expenses,  and  estimates  on  outlays  for  consumers' 
goods  run  as  high  as  $30,000,000,000  annually.  The  usual 
classifications  of  expenses  are  as  follows,  in  the  order  of  their 
importance : 

Food 

Rent 

Clothing 

Fuel  and  light 

Miscellaneous  items 

Omitting  rent,  since  this  item  is  not  dealt  with  through 
retail  stores,  the  following  is  presented  as  one  of  the  typical 
estimates  of  national  consumption  in  several  lines  of  goods: 

Pood    $8,200,000,000 

Men's   clothing    765,000,000 

Women's   clothing    790,000,000 

Children's  clothing 500,000,000 

Shoes    730,000,000 

Furniture    530,000,000 

Per  Capita  Consumption.— The  following  estimates  of 
consumption  in  specific  lines  have  been  drawn  from  various 
sources : 

Suear    »•  •  •      89.0     lbs.  per  capita 

Coffee    "-5 

«        "         " 
Cocoa    ^  -^5 

Tea    14 

Shoes    $10-00 

Wool    5-25    l^s. 

„  {(  ((  ts 

Cotton    20.0 

Tobacco    5-7  ^^        ^^ 

Soda  water   $1.20 

$  ft  u 
^-^o                 ^^  ^^ 

Flavoring   extracts    P-OO 

Baking   powder    $-40  "^        " 

Condensed  milk   $i-00 

Soap •. ?^«°     ;:  :: 

Perfumery  and  cosmetics   $75 


THE   CONSUMER 


39 


Income  of  Families  in  the  United  States,  1918. 


Classes  o 

f  Incomes 

Und 
$780  to 

er    $850* 
$910 

911 

1,040 

1,041 

1,170 

1,171 

1,300 

1,301 
1,431 
1, 561 
1,691 
1,821 
1. 95 1 

« 

<< 
II 

11 

1,430 
1,560 
1,690 
1,820 
1,950 
2,080 

2,o8i 

2,210 

2,211 

2,340 

2,341 
2,471 
2,601 
2,861 

II 
i< 

2,470 
2,600 
2,860 
3,000 

3,001 

<( 

4,000 

4,001 

II 

5,000 

5,001 

6,000 

6,001 

(( 

7,000 

7,001 

n 

8,000 

8,001 

II 

9,000 

9,001 

II 

10,000 

10,001 

15,000 

15,001 

II 

20,000 

20,001 

II 

25,000 

25,001 

30.000 

30,001 

40,000 

40,001 
50,001 

11 

50,000 
60,000 

60,001 

i< 

70,000 

70,001 

II 

80,000 

80,001 

II 

90,000 

90,001 

II 

100,000 

100,001 

II 

150,000 

150,001 

200,000 

200,001 

250,000 

250,001 

300,000 

300,001 

400,000 

400,001 

500,000 

500,001 

1,000,000 

1,000,001 

1,500,000 

1,500,001 

2,000,000 

2,000,001 
3,000,001 

II 

3,000,000 
4,000,000 

4,000,001 

5,000,000 

5,000,001 

and  over 

Average  Income 


$850 
1,000 
1,100 
1,250 
1,350 
1,500 
1,600 
1,750 
1,900 
2,000 
2,150 
2,275 
2,400 
2,550 
2,750 
3,000 
3,500 
4,500 
5,500 
6,500 
7,500 
8,500 
9,500 
12,500 
17,500 
22,500 
27,500 
35>ooo 
45,000 
55,000 
65,000 
75,000 
85,000 
95,000 
123,000 
174,000 
225,000 
277,000 
345.000 
448,000 
683,000 
1,106,000 
1,701,000 
2,459,000 
3,459,000 
4,514,000 
10,284,000 


Totals. 


No.  of  Families 


7,288,000* 

3,590,000 

3,5-5,ooj 

2,737,ooj 

2,262,000 

1,826,000 

1,602,000 

1,228,000 

710,000 

475,000 

385,000 

306,000 

243,000 

189,000 

142,000 

200,000 

167,000 

85,000 

72,000 

52,000 

36,500 

26,500 

20,000 

15,500 

45,309 
22,618 

12,953 
8,055 

10,068 
5,611 
3,621 
2,548 
1,787 
1,422 

1,074 
2,900 

1,284 
726 

427 
469 

245 
376 
97 
42 
34 
14 
9 
10 


27,304,199 


Total  Income 


$4,703,217,000 
3,051,500,000 
3,525,000,000 
3,010,700,000 
2,827,500,000 
2,465,100,000 
2,403,000,000 
1,964,800,000 
1,242,500,000 
902,500,000 
770,000,000 
657,900,000 
552,825,000 
453,600,000 
362,100,000 
550,000,000 
501,000,000 
297,500,000 
324,000,000 
286,000,000 
237,250,000 
198,750,000 
170,000,000 
147,250,000 
566,362,000 
395,815,000 
291,442,000 
221,512,000 
352,380,000 
252,495,000 
199,155,000 
165,620,000 
134,025,000 
120,870,000 
102,030,000 
356,700,000 
223,416,000 
163,350,000 
118,279,000 
161,805,000 
109,760,000 
256,770,000 
107,282,000 
71,442,000 
83,606,000 
48,426,000 
40,626,000 
102,840,000 
2,000,000,000 

$38,250,000,000 


•This  group  is  composed  of  a  number  of  individuals  as  well  as  families. 


40 


ECONOMICS  OF  RETAILING 


Another  and  more  scientific  way  has  been  used  in  arriv- 
ing at  per  capita  consumption,  and  that  is  by  getting  the  figures 
from  the  consumers  themselves.  A  number  of  such  investiga- 
tions have  been  made  during  the  last  sixty  years,  but  in  the 
nature  of  the  case  each  was  limited  in  scope.  The  results 
of  these  investigations  were  very  well  summed  up  in  the 
report  of  the  Massachusetts  Cost  of  Living  Commission  in 
19 ID.  This  summary  will  be  found  in  Appendix  A,  from 
which  the  following  sentences  are  quoted :  "It  would  be  safe 
to  deduce  from  these  tables  a  few  generalizations  about  the 
expenditure  of  the  income  of  a  workingman's  family  under 
normal  conditions.  For  weekly  incomes  of  from  $12  to  $18 
the  income  would  usually  be  spent  about  as  follows:  rent, 
18  to  20  per  cent;  fuel  and  light,  5  per  cent;  clothing,  14  per 
cent;  food,  43  to  45  per  cent;  sundries,  15  to  17  per  cent.  This 
analysis  may  not  fit  the  expenditures  of  many  families,  but  it 
would  probably  be  found  that  normal  families  with  incomes 
of  the  amount  stated  tend  to  approach  these  figures." 

Average  Family  Expenditures. — The  first  of  the  following 
tables  summarizes  the  figures  which  are  presented  in  detail 
in  the  second.  The  figures  are  the  result  of  a  study  conducted 
by  the  Bureau  of  Labor  Statistics  during  the  years  19 18-19 19. 
The  more  detailed  table  is  taken  from  the  Monthly  Labor  Re- 
7'iew  of  August,  1919;  it  shows  in  detail  the  items  of  expendi- 
ture for  typical  workingmen's  families. 

(Average  number  of  persons  per  family  4.9) 

Per    Cent    of 

Items  of  Expenditure                Average  Expenditure 

Food    $548.50  38.3% 

Clothing    237.60  16.6% 

Rent    191-37  134% 

Fuel  and  light 76.15  5-3% 

Furniture  and   furnishings    73.22  5.1% 

Miscellaneous    306.10  21.3% 

Total    1,434.36  100.0% 


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41 


^ 


^  ECONOMICS  OF  RETAILING 

The  averages  presented  in  the  preceding  tables  represent 
standards  which   may  be  fairly  representative  of  whole 
classes  of  our  population,  but  from  which  individual  families 
vary      It  is  probably  true  that  most  people  consume  amounts 
close  to  the  average  for  their  class;  but  in  planning  a  retail- 
store  selling  system  it  is  necessary  to  go  still  further  and  ask 
what  causes  the  variations  from  the  average  and  what  the 
likelihood  is  that  there  will  be  such  variations.     Every  fam- 
ily must  have  food  and  clothing,  but  some  families  will  econ- 
omize in  food  in  order  to  buy  more  clothing,  while  o  hers 
will  do  the  opposite.     Which  a  particular  customer  will  do 
will  depend  much  upon  personal  habits,  personal  pecuharities. 
and  the  strength  of  the  appeals  made  for  the  goods  of  the 
various  classes  by  advertising  or  by  salesmen 

In  an  investigation  made  by  the  Chicago  Tribune  m  1913 
as  to  why  some  30,000  housekeepers  had  purchased  certain 
food  products,  it  was  found  that — 

tc%  of  the  housekeepers  were  influenced  by  retailers 
i%  of  the  housekeepers  were  influenced  by   advertising 
re  of  the  housekeepers  were  influenced  by  friends 


THE  CONSUMER 


43 


Appealing  to  Instincts.-It  is  clear,  therefore,  that  the 
suggestion  and  salesmanship  of  the  retailer  was  a  powerful 
factor  in  introducing  new  articles  to  the  customer.  Added  to 
this  is  the  influence  of  advertising,  calling  for  the  use  of 
funds  in  a  hundred  different  ways. 

The  saving  instinct  in  some,  the  love  of  finery,  the  stand- 
ards of  spending  of  the  class  to  which  the  consumer  aspires 
to  belong,  the  appeal  of  the  goods  themselves-as  for  ex- 
ample that  they  save  time  or  labor,  or  gn^  comfort,  p  o- 
e  on,  or  pleasure-all  tend  to  have  their  effect  on  the  ulti- 
mate division  of  the  family  income  between  the  various  classes 
of  goods      What  constitutes  a  strong  appeal  to  one  may  not 


have  any  influence  with  another.  It  is  only  in  the  most 
general  way  that  we  can  say  that  all  people's  demands  for 
goods  are  alike. 

Fluctuation  of  "Consumer-Demand."— "Consumer-de- 
mand"^ is  constantly  changing.  With  this  fact  everybody 
is  familiar.  In  foodstufifs,  desire  has  increased  for  greater 
variety  and  finer  quality.  Attention  is  now  being  given  as 
never  before  to  the  appearances  of  food,  its  flavor,  taste,  and 
its  appeal  to  the  aesthetic  senses.  In  clothing,  fashion  now 
rules  among  practically  all  classes.  Clothes  no  longer  wear 
out ;  they  pass  out.  Faded  or  threadbare  suits  are  rarely  ever 
seeri.  In  the  homes  there  has  grown  up  a  demand  for  more 
room,  more  light,  more  fresh  air,  and  for  a  well-regulated 
temperature.  Furniture  and  furnishings  as  well  as  the  build- 
ing itself  are  touched  by  fashion  and  conventionality.  The 
standards  of  classes  enjoying  leisure  and  wealth  have  been 
selected  as  the  types  for  popular  imitation,  moderated  to  a 
limited  extent  by  the  influence  of  culture  spread  by  the  schools 
and  literature  now  enjoyed  by  all  classes. 

Canned  Goods  an  Example.— Illustrations  of  these  changes 
in  consumer-demand  are  available  on  every  hand.  Families 
no  longer  lay  in  "a  winter's  supply"  of  any  kind  of  food. 
Such  storing  of  foods  is  no  longer  necessary.  The  means 
for  better  storage  on  a  large  scale  have  been  invented,  and  the 
people  have  gladly  availed  themselves  of  these  and  thus  elimi- 
nated all  the  risk  and  trouble  connected  with  collecting  and 
storing  foods  at  home  for  long  periods.  The  waste,  the 
spoilage,  and  the  capital  formerly  tied  up  in  the  big  family 
supplies,  as  well  as  the  labor  of  canning,  preserving,  and 


«  ..«  J  ^o„^»»  ;e  !i  term  that  has  recently  come  into  use  among  producers 

who    rr^rtrnafTdv/rtise's'  'Y," is    used    in    con.Ldis.inc.ion    .o    ••dealer-demand." 
The  meanings  are  obvious. 


44 


ECONOMICS  OF  RETAILING 


pickling,  and  the  general  lack  of  variety  characteristic  of 
this  way  of  doing  things,  has  been  largely  eliminated  by  the 
introduction  of  this  large-scale  commercial  cold  storage,  by 
the  wholesale  canning  and  preserving  of  fruits  and  vegetables, 
and  by  the  preparation  of  foods  for  distribution  in  small 
parcels  or  packages. 

A  general  idea  of  the  extent  to  which  this  process  has  been 
carried  and  the  possibility  of  a  varied  diet  today  as  compared 
with  that  of  a  generation  ago  when  there  were  no  canned 
goods  other  than  those  prepared  at  home,  can  be  gained  from 
running  over  the  following  list  of  canned  goods.  This  is  by 
no  means  complete,  but  represents  fairly  the  goods  a  modern 
grocery  store  expects  to  supply  its  customers. 

Apricots,  anchovies,  apples,  apple  sauce,  artichokes,  as- 
paragus, baked  beans,  lima  beans,  kidney  beans,  string  beans, 
w^ax  beans,  blackberries,  black  raspberries,  red  raspberries, 
strawberries,  huckleberries,  beets,  brown  bread,  carrots,  cauli- 
flower, celery,  cherries,  clams,  corn,  crabs,  cranberries,  cran- 
berry sauce,  currants,  dandelions,  figs,  fish,  game,  grapes, 
guavas,  gumbo,  hominy,  jams,  jellies,  catsup,  lentils,  lobster, 
meats,  milk,  mincemeat,  molasses  and  syrups,  mushrooms, 
nectarines,  okra  and  tomatoes,  oysters,  parsnips,  peaches,  peas, 
peppers,  pigs'  feet,  pineapple,  plum  pudding,  plums,  poultry, 
preserves,  pumpkins,  quinces,  rhubarb,  salmon,  sardines,  sauce, 
sauerkraut,  shrimps,  soups,  spaghetti,  spinach,  squash,  suc- 
cotash, sweet  potatoes,  sprouts,  tamales,  terrapin,  tomatoes, 
turnips,  turtle. 

The  term  "meats"  in  this  list  could  be  divided  into  a 
dozen  or  more  articles  little  known  to  the  public,  and  the  word 
*'fish"  stands  for  nearly  as  large  a  variety  of  canned  food. 

Canned  Goods  and  the  Cost  of  Living. — Much  has  recently 
been  said  concerning  the  increasing  costs  of  food  due  to  the 
use  of  cans  and  packages.     The  New  York  State  Food  Inves- 


THE   CONSUMER 


45 


tigating  Commission,  the  Massachusetts  Cost  of  Living  Com- 
mission, as  well  as  many  other  bodies  and  individuals,  have 
held  that  the  tendency  to  sell  goods  in  this  form  is  one  of  the 
causes  of  the  increased  cost  of  living.  That  this  is  true  there 
can  be  no  doubt,  but  that  the  use  of  receptacles  of  this  kind 
is  therefore  undesirable  is  quite  another  question.  The  rapid 
extension  of  their  use  seems  to  indicate  a  growing  instead  of 
a  diminishing  popular  favor.  The  arguments  commonly  ad- 
vanced in  favor  of  package  and  canned  goods  are  as  follows : 

1.  Goods  are  kept  in  better  condition,  free  from  dust 
and  handling. 

2.  Keeping  qualities  are  enhanced. 

3.  Cost  of  handling  in  the  retail  store  is  reduced.  It  is 
easy,  as  far  as  handling  is  concerned,  to  sell  a  package  or  can 
ready  for  passing  across  the  counter.  Such  goods  can  be  sold 
to  the  consumer  at  a  lower  margin  of  gross  profit  than  bulk 
goods  of  the  same  class. 

4.  There  is  less  waste  both  in  the  store  and  in  the  homes, 
the  waste  formerly  resulting  from  handling,  weighing,  pack- 
ing, and  so  on,  being  largely  eliminated. 

5.  The  package  or  can  is  more  attractive  than  goods 
of  like  character  in  bulk.  While  the  number  of  grams  of  food 
elements  in  a  package  are  not  changed  a  bit  by  its  appearance, 
it  is  well  known  that  the  consumer's  appetite  is  decidedly  af- 
fected by  it.  The  attractive  food  container  as  well  as  the  table 
linen  and  silver  are  elements  in  consumption  that  people  now 

demand. 

6.  The  use  of  canned  goods  gives  even  to  the  family 
of  moderate  income  an  opportunity  to  use  a  wide  variety  of 
foods  from  all  parts  of  the  world. 

7.  The  contents  of  a  can  or  package  are  usually  of  such 
quantity  as  may  be  served  and  consumed  in  a  short  time.  The 
consumers  do  not  grow  tired  of  the  food  as  they  did  when 
they  ate  oatmeal  porridge  made  from  oatmeal  out  of  the  bar- 


46 


ECONOMICS  OF  RETAILING 


rel  every  morning  all  year  long.     The  use  of  canned  and 
packaged  goods  permits  of  frequent  changes  in  diet. 

8.  All  parts  of  the  foods  that  are  packaged  or  canned 
are  edible,  and  many  such  foods  are  ready-cooked.  There 
is  no  waste.  The  unedible  parts  are  removed  at  the  factories 
and  made  up  into  by-products,  while  under  the  old  methods  of 
home  food  production  such  materials  were  very  largely  thrown 
away,  especially  in  the  cities.  Much  of  the  packing,  as  well  as 
other  operations  of  food  preparation,  is  done  by  machinery 
with  great  saving  of  labor. 

Demand  for  Canned  Goods  Certain. — That  food  in  cans 
and  packages  costs  more  than  in  bulk  as  formerly  sold  is  un- 
questionably true.  If  consumers  desire  their  foods  in  these 
"^orms,  they  must  pay  for  the  expense  of  their  preparation. 
Ii  is  also  likely  that  in  the  case  of  some  of  these  goods  the 
margins  of  profit  are  much  higher  than  with  similar  bulk 
goods.  This  may  be  accounted  for  partly  by  the  novelty  of 
the  product,  its  immediate  success,  and  the  lack  of  the  keen 
competition  that  is  likely  to  develop  in  the  course  of  time. 
That  the  demand  for  food  in  small  lots  put  up  in  attractive 
form  is  here  to  stay,  seems  certain. 

Other  Examples  of  Changed  Demand. — Many  illustrations 
could  be  given  of  changes  in  the  character  of  demand  for 
clothing.  For  example,  men's  $io  suits  of  clothes  have  given 
way  to  $15  to  $25  suits;  women's  corsets  for  25  cents  up 
to  75  cents  have  been  displaced  by  those  selling  from  $2  up  to 
$3  and  more.  Boots  for  men  gave  way  to  congress  shoes, 
and  congress  shoes  to  lace  and  button  shoes.  Copper-tipped 
shoes  for  children  are  now  unknown.  Fifteen  years 
ago  nearly  all  men  polished  their  own  shoes.  Now  shoe- 
blacking  is  hardly  ever  sold  to  people  living  in  the  richer 
homes.     Shoes  are  polished  by  bootblacks  and  in  so-called 


THE  CONSUMER 


47 


"shoe-shining  parlors."  The  shawl  for  men  and  for  women 
is  gone,  as  is  the  paper  collar,  dickie,  and  cuffs  for  men. 
Heavy  underwear  has  been  discarded  for  much  lighter  weights 
but  of  much  finer  grades. 

Clothing  for  women  and  children,  nearly  all  made  in  the 
homes  a  score  of  years  ago,  is  now  largely,  probably  half  of 
it,  made  outside  of  the  homes,  in  factories.  Entire  families 
of  children  were  once  dressed  in  clothing  made  from  fabric  of 
the  same  pattern  sold  from  the  same  bolt,  so  that,  having  seen 
one  of  the  children,  one  could  identify  all  of  the  rest  of  the 
members  of  a  family  by  their  uniform  colors.  Now,  all  of 
that  is  changed.  Where  means  permit,  each  child  in  the 
family  must  have  a  distinctive  dress  suited  to  its  age  and  in- 
dividuality. The  carpet  bag  and  rubberized  satchel  have  given 
way  to  the  suit  case  and  traveling  bag.  Gone  also  is  the  cot- 
ton umbrella  with  its  whalebone  ribs.  In  the  drug  line, 
proprietary  articles  increased  from  7,500  in  the  early  90's  to 
over  40,0(X)  in  19 19.  Hardware,  furniture,  and  many  other 
lines  have  experienced  similar  tendencies. 


Reasons  for  Changed  Demand. — 

Immigration  and  Education.  The  causes  for  such 
changes  in  this  country  are  not  hard  to  discern.  In  addition 
to  the  change  in  habits  from  one  generation  to  another,  there 
is  the  steady  effect  of  the  inflowing  immigration,  also  the 
emigration.  Each  addition  or  subtraction  of  people  from  a 
community  is  likely  to  strengthen  or  weaken  some  tendency 
to  form  certain  habits  of  consumption.  But  more  effective 
than  these  general  movements  is  the  education  that  the  Ameri- 
can public  is  getting  through  its  schools,  theatres,  lectures, 
moving-picture  shows,  and  so  on.  Through  these  everybody 
finds  out  what  everybody  else's  standard  of  living  is.  No 
class  can  keep  its  methods  of  satisfying  its  wants  long  to  itself. 
The  poor  learn  from  the  rich,  the  employee  from  the  employer, 


g  ECONOMICS  OF  RETAILING 

and  the  country  from  the  city.  Chicago  learns  what  New 
York  is  doing-what  its  people  have  to  wear  and  how  they 
live  •  and  Kankakee  learns  from  Chicago.  Information  is  dif- 
fused quickly  and  widely.     Emulative  imitation  takes  care  of 

the  rest.  ^  ,  r  ^  u^^ 

Short  Labor  Hours.  The  shortening  of  hours  of  labor 
and  the  consequent  increase  in  leisure  time  that  nearly  all 
classes  have  enjoyed  has  helped  indirectly  to  bring  about  the 
great  changes  in  demand  noted  above.  During  the  newly  ac- 
quired leisure  time,  the  laborer  has  had  the  opportunity  to 
learn  and  to  think  about  things  concerning  which  he  could 
have  had  no  possible  interest  while  his  time  was  entirely  taken 

up  by  his  work.  .     .    i  i  ^f 

High  Wages.     The  rise  into  economic  independence  of 
large  classes  of  people  is  another  factor  helping  to  produce  the 
changes.  Nowhere  are  the  effects  on  demand  for  such  changes 
in  economic  conditions  more  obvious  than  among  those  classes 
of  people  who  have  an  income  of  one  thousand  dollars  a  year 
and  over.     In  families  having  less  than  this  income,  the  wife 
must  often  work  as  well  as  the  husband,  but  when  the  hus- 
band's salary  or  income  passes  this  point,  one  of  the  tiist 
things  that  occurs  is  the  withdrawal  of  the  wife  from  some, 
if  not  all,  productive  labor.     The  standard  for  the  wife  there- 
after becomes  one  of  leisure,  and  the  demand  made  for  goods 
reflects  how  this  standard  moves.     Not  only  is  outside  worK 
by  the  wife  given  up,  but  also  the  labors  of  the  home  are 
lightened   progressively.     Package    goods   and    ready-cooked 
foods,  or  foods  that  may  be  prepared  in  a  very  few  minutes 
with  the  least  possible  amount  of  labor,  are  especially  esteemed. 
Orders  for  goods  are  for  small  quantities  only,  and  left-overs 
are  disliked.     The  servant  problem  is  solved  by  throwing  most 
of  the  work  of    the    home    on    commercial    enterprise    and 
eliminating  maids  and  servants  entirely. 

Pictures.     Every  magazine,  newspaper,  and  recent  novel 


THE   CONSUMER 


49 


is  a  lesson  in  demand.     Advertising,  news,  stories,  and  illus- 
trations convey  impressions  concerning  the  methods  by  which 
people  satisfy  their  material  desires  and  cause  the  wide  dif- 
fusion of  current  standards.     Who  can  estimate  the  influence 
that  the  food,  dress,  and  ways  of  living  of  heroes  and  heroines 
in  modern  novels,  have  had  on  the  standards  of  the  readers  ? 
The  influence  of  the  theatre  on  women's  dress  is  well  under- 
stood, but  no  one  has  yet  given  Christy,  Hutt,  Fisher,  Gibson, 
Flagg,  Phillips,  and  other  popular  artists  and  illustrators  the 
credit  they  deserve  for  interpreting  the  high  tide  of  fashion 
in  clothing  and  dress  accessories,  and  for  helping  to  popularize 
style  tendencies  through  their  work  as  illustrators  of  fiction. 
What  is  proper  and  desirable   is  thus  built  up  in  consumers' 
minds  quite  unconsciously.     Mental  products  of  these  kinds 
are  the  ones  consumers  fancy  to  be  their  own— the  result  of 
their  own  tastes  and  intuitions. 

Consumer  Rules  Retail  Market.— In  conclusion,  the  con- 
sumers are  the  rulers  of  the  retail  market.     What  consumers 
want,  actually  or  potentially,  constitute  the  things  that  the  re- 
tailer must  supply.     If  he  cannot,  he  must  make  way  for  the 
one  who  can.     It  is  most  difficult  to  characterize  these  con- 
sumers in  general  terms.     Among  the  multitude  of  consumers 
there  are  marked  individual  differences.     No  general  classi- 
fication would  be  adequate.     They  are  of  all  classes  and  con- 
ditions.    They  are  made  up  of  the  rich  and  poor,  old  and 
young,  ignorant  and  intelligent,  active  and  indolent,  careful 
and  indifferent,  honest  and  dishonest,  and  the  sick  and  the 
well.     Most  of  them  are  struggling  for  a  living,  all  have  their 
difficulties  to  contend  with,  and  few  can  ever  have  all  of  their 
demands  for  goods  entirely  satisfied.     Now  attending  to  one 
want,  now  another,  they  seek  the  maximum  of  satisfaction 
possible  to  them  under  the  circumstances.     Subject  to  a  multi- 
tude of  whims,  unsystematic  in  their  buyings,  forgetful,  ease- 


50 


ECONOMICS  OF  RETAILING 


loving— such  in  general  is  the  character  of  the  customer  of  the 
retailer.  It  is  for  these  that  the  retail  store,  in  fact  all  busi- 
ness, exists.  The  merchant  and  his  employees,  who  have 
learned  that  the  store  is  for  the  customer  and  not  the  cus- 
tomer for  the  store,  have  gone  far  toward  solving  the  problem 
of  how  a  retail  institution  shoiild  be  conducted. 


Bibliography 

Beardot,  E.     The  Quality  Appeal.     Printers'  Ink,  February  22,  1912. 

Fawcett,  W.     Consumer  Demand.     Printers'  Ink,  November  7,  1912. 

Frederick,  Mrs.  C.  Woman— the  Greatest  Buyer.  Address  before 
Associated  Advertising  Clubs  of  the  World.  Toronto,  June  22, 
1914.     Associated  Advertising,  August,  1914. 

Hall,  G.  S.  Adolescence,  Vol.  II,  pages  561-569.  (Splendid  on 
differences  between  men  and  women.) 

Harris,  W.  J.  How  the  Shifting  of  Population  Is  Affecting  Pos- 
sible Markets.     Printers'  Ink,  August  28,  1913. 

Homes,  Geo.  K.  Consumers'  Fancies.  Year  Book  of  U.  S.  Depart- 
ment of  Agriculture,   1904. 

Langworthy,  C.  F.  Food  Customs  and  Diet  in  American  Homes. 
Circular  no.  Office  of  Experimei:i.t^Stationfi,  ..IJ^S.  Department 

of    Agriculture. 
Johnson,  R.  W.     Keeping  Up  witH  the  Changhig  Market.    Printers' 

Ink,  September  12,  1912. 
Parlin,   C.   C.     The   Merchandising  of   Textiles.     Curtis   Publishmg 

Company.  ^     „  • 

Rogers,  E.  S.    What  Sort  of  a  Person  Is  the  Consumer?    Printers 

Ink,  September  26,   1912. 
Spencer,  C.  D.     Putting  Yourself  in  the  Consumer's  Place.    Printers 

Ink,  June  15,  1911. 

Ward,  L.  F.  The  Psychic  Factors  of  Civilization,  Ch.  XXVI,  Fe- 
male Intuition." 

Warren,  W.  P.  Getting  People  to  Pay  More.  Printers'  Ink,  Decem- 
ber 28,   191 1. 

Woman  as  a  Buyer.    Printers'  Ink,  October  20,  1910. 


CHAPTER  IV 


PRESENT  STATUS  OF  RETAILING 


Census  Retail  Store  Statistics. — To  get  an  accurate  idea 
of  the  proportions  of  any  business,  one  naturally  turns  to  the 
census  statistics  of  a  country.  But  in  the  study  of  the  dis- 
tribution of  goods,  and  of  retailing  in  particular,  one  meets 
with  a  strange  lack  of  any  information  in  such  documents. 
The  only  helpful  material  contained  in  the  United  States  Cen- 
sus reports  having  any  reference  to  trade  are  the  figures  show- 
ing the  occupations  of  the  working  population  of  the  coun- 
try. Such  figures  were  first  published  for  the  census  of  1850, 
and  have  been  continued  in  connection  with  each  decennial 
census  down  to  the  present,  but  the  working  of  the  Census 
Bureau  machinery  is  so  slow  that  years  intervene  between  the 
census  itself  and  the  publication  of  its  results.  For  example, 
the  report  on  occupations  from  the  census  of  191  o  was  not 
published  until  the  autumn  of  19 14. 

Census  of  1910. — The  following  figures  are  presented  from 
the  census  of  19 10.  The  reader  should  observe  caution  in 
reading  the  table.  For  example,  the  figures  showing  the  num- 
ber of  merchants  and  dealers  do  not  represent  the  number  of 
establishments.  All  owners  and  partners  and  managers  of 
stores  were  counted.  In  cases  where  a  store  was  owned  by 
several  partners,  each  partner  was  counted.  In  cases  where 
one  person  owned  several  stores  directly  managed  by  himself, 
the  owner  or  manager  was  counted,  and  not  the  stores.  The 
total  does  not  represent  the  number  of  retail  stores  in  this 
country,  and  there  is  no  way  of  telling  whether  the  number  of 

51 


C2  ECONOMICS   OF  RETAILING 

establishments  is  greater  or  smaller  than  the  number  of  mer- 
chants and  dealers. 

Number  of  Persons  Engaged  in  the  Retail  Business' 

Retail  merchants  and  dealers,  total o  "o*  "  ^'^^^'^^^ 

Agricultural    implements    °,S^^ 

Automobiles    ^'^^l 

Books    3»"« 

Boots  and  shoes   I9.340 

Butchers    and    meat    dealers    124,048 

Candy   and   confectionery    29,538 

Cigars    and    tobacco    17728 

Clothing  and  men's  furnishings   . . .       35.273 

Coal  and  wood   24,466 

Department  stores   ^  '^^^ 

Drugs  and  medicines 67,575 

Dry-goods,  fancy  goods,  notions  . . .       65,283 

Five  and  ten  cent  variety   4»33l 

Furniture    H'^^ 

General    stores    88,059 

Groceries    ^^Hl^ 

Hardware,  stoves,  cutlery   39.6o3 

Harness  and  saddlery   J'^"^^ 

Hucksters  and  peddlers 80,415 

Jewelry    29,962 

Liquors  and  wines  ^?'  o 

Lumber    26,485 

Music  and  musical  instruments 5»222 

Newsdealers    ^  o^a 

Oil,  paint,  wall  paper  6,818 

Opticians     6,284 

Produce  and  provisions   29,039 

Rubber  goods    493 

Cashiers  in  stores Jq^.r. 

Clerks  in  stores    "^      8^^ 

Bundle  and  cash  boys  and  girls  io,mo 

Decorators,  drapers,  window  dressers   5>34i 

Delivery   men    ^°^'^«n 

Demonstrators    4.3oo 

Elevator   tenders    A'ZH 

Store  laborers   ^8,093 

Meat  cutters    sic  iRn 

Salesmen   and   saleswomen    076 

Scrubbers  and  sweepers  270 

pages  4^0-423. 


PRESENT   STATUS   OF  RETAILING 


53 


Difficulties  of  Comparison.— Another  defect  in  the  United 
States  Census  figures  for  the  different  decades  is  the  lack  of 
uniformity  in  classification  of  the  occupations  having  to  do 
with  trade.  This  makes  all  comparisons  of  one  decade  with 
another  decade  difficult,  and  doubtful  in  result.  For  example, 
wholesale  merchants  were  not  separated  from  retail  merchants 
until  1890.  Up  to  1890,  retail  salespeople  were  counted  as 
clerks  and  copyists.  Traveling  salesmen  were  not  enumerated 
as  a  class  until  1870.  No  attempt  was  made  to  classify  a  large 
class  of  dealers  at  all.  In  1900  over  364,000  merchants^out 
of  the  total  of  790,000  were  simply  lumped  together  as  "not 
specified." 

Massachusetts  Trade  Census.— Nearly  every  state  in  the 
union  takes  a  periodical  census,  but  none  of  them,  with  the 
single  exception  of  Massachusetts,  has  taken  any  particular  ac- 
count of  the  distributing  classes.  In  1904  a  law  was  passed 
in  Massachusetts  requiring  that  a  census  be  taken  of  trade 
at  the  same  time  as  the  regular  ten-year  census  is  taken  m 
years  ending  in  5.  In  consequence  a  study  was  made  of 
the  distributing  business  in  Massachusetts  in  1905,  the  first 
of  its  kind  in  this  country.  The  volume  containing  the  report 
of  this  census  was  issued  in  1908. 

The  Massachusetts  census  of  trade  is  so  significant  that 
it  merits  something  more  than  mere  mention  in  this  connec- 
tion. Its  results  cover  the  following  subjects :  when  the  stores 
were  established;  number  of  establishments,  classified  into 
retail,  wholesale,  jobbing,  commission,  exporting,  importing, 
and  exporting  and  importing;  the  number  of  partners  and 
stockholders;  the  capital  invested;  value  of  goods  sold;  the 
number  of  wage  earners;  the  wages  paid  per  week;  the  num- 
ber of  salary  earners ;  and  the  salary  paid  per  week. 

As  a  study  of  wage  and  salary  conditions,  this  census  is 
excellent,  but  retail  stores  are  not  carefully  enough  distin- 


54 


ECONOMICS    OF   RETAILING 


guished  from  the  other  kinds  of  distributing  institutions 
to  permit  one  to  form  any  conclusion  as  to  the  proportion 
of  distributors,  as  for  example,  grocers,  dry -goods  men,  or 
hardware  storekeepers,  to  population.  Nothing  definite  can 
be  learned  as  to  the  service  rendered  to  the  people  of  the 
state  in  kinds  of  goods  handled  and  expenses  of  handling. 
A  good  start  was  made  in  getting  this  census,  but  much  more 
still  remains  to  be  done.  Some  of  the  more  suggestive  results 
which  are  shown  in  the  Massachusetts  report  may  be  noted  as 
follows : 

Over  half  of  the  extant  concerns  had  come  into  existence 
within  the  ten-year  period  preceding  the  census.  Ten  firms 
out  of  a  total  of  29,045  had  been  founded  before  1770. 
There  were  12,441  stores  which  sold  food  products.  The 
average  investment  in  each  of  these  was  $2,489,  and  the 
average  sales  $14,569.  There  was  one  food  store  for  every 
241  people  in  the  state. 

Report  of  Massachusetts  Bureau  of  Labor  Statistics. — 

Another  important  contribution  to  the  subject  of  retailing  was 
made  by  the  state  of  Massachusetts  in  its  Report  of  the  Bureau 
of  Statistics  of  Labor  for  1899,  published  in  March,  1900. 
Seventy  pages  in  this  report  were  devoted  to  a  study  of 
"Changes  in  Conducting  Retail  Trade  in  Boston  since  1874.'' 
The  investigation  upon  which  this  report  was  based  was  un- 
dertaken to  determine  the  effect  of  the  increase  in  number  of 
department  stores  on  the  retail  trade.  Several  states  were 
considering  legislating  against  the  department  stores  at  the 
time,  and,  as  it  happened,  there  was  a  bill  introduced  before 
the  Massachusetts  legislature  during  the  session  of  1899-1900. 
Nothing  came  of  this  bill,  however,  and  the  Bureau  reported 
as  the  results  of  its  investigation,  that  there  was  no  reason 
to  believe  that  department  stores  were  crowding  the  small 
stores  out  of  existence. 


PRESENT   STATUS   OF  RETAILING 


55 


V 


Mercantile  Agency  Lists.— Another  source  of  statistical  in- 
formation concerning  the  number  of  retailers  of  this  country 
and  their  financial  ability,  is  found  in  the  reference  books  of 
R.  G.  Dun  and  Company  and  in  the  Bradstreet  lists  of  vari- 
ous classes  of  dealers.  These  lists  all  probably  contain  some 
inaccuracies.  Neither  of  the  two  concerns  are  able  to  get  all 
of  the  names  of  all  concerns  in  business.  But  the  lists  are 
likely  to  include  the  better  and  more  stable  classes  of  retailers 
— those  who  have  been  in  business  for  some  time.^ 


-  A  list  of  the  number  of  wholesalers  and  retailers  in  various  lines  of  merchandise 
as  compiled  from  R.  G.  Dun  &  Company's  records,  is  given  in  Appendix   B. 


DAMAGED    PAGE{S) 


■Ib^ 


THE   EXPENSES    OF   RETAILING 


57 


CHAPTER  V 

THE  EXPENSES  OF  RETAILING 

Analyzing  Expenses.— One  of  the  best  ways  to  get  a  clear 
understanding  of  the  retail  business  is  to  analyze  its  expenses. 
Until  such  an  analysis  has  l^een  made,  comparisons  of  the 
work  of  one  store  with  that  of  another  are  mostly  meaningless. 
But  the  development  of  better  retailing  l)eyond  a  certain  point 
can  come  only  through  intimate,  detailed  comparisons  of  the 
elements  determined  from  such  an  analysis.  The  factors  fa- 
vorable to  efficiency  may  thus  be  isolated  in  the  more  success- 
ful stores  and  applied  in  the  administration  of  the  less  suc- 
cessful. The  leaks,  wastes,  and  abnormal  elements  may  like- 
wise be  determined  and  eliminated. 

Three  Factors  of  Production.— In  text-books  of  general 
economics  it  is  commonly  stated  that  there  are  three  factors  of 
production,  viz.,  land,  labor,  and  capital.  A  retail  business, 
like  all  other  economic  enterprises,  possesses  these  three  fac- 
tors. The  land  factor  comprises  the  location  utilized  by  the 
store,  and  the  labor  includes  all  of  the  services  given  to  the 
business  by  all  the  people  employed  in  it,  from  manager  down 
to  the  elevator  boy  or  cash  girl.  The  capital  element  includes  all 
that  for  which  money  has  been  laid  out— such  as  merchandise, 
fixtures,  and  equipment  of  all  kinds. 

This  classification  has  its  value  for  purposes  of  general 
economic  discussion,  but  in  a  treatise  on  a  special  field  of 
economics,  such  as  the  distribution  of  goods  at  retail,  it  is  not 
detailed  enough  to  be  as  serviceable  as  it  should  be.  For 
a  better  enumeration  of  the  factors  of  a  retail  business  we 

56 


must  go  to  the  accountants  who  have  made  a  special  study  of 
cost-finding  in  the  retail  business. 

Retail  Cost  Accounting  Investigations. — The  most  notable 
contribution  to  retail  cost  accounting  is  the  "Harvard  Sys- 
tem of  Accounts  for  Shoe  Retailers."  In  191 1  the  Bureau  of 
Research  in  the  Graduate  School  of  Business  Administration 
of  Harvard  University  began  investigating  the  distribution 
of  shoes  with  a  view  to  collecting  facts  suitable  for  educational 
purposes.  A  certain  amount  of  field  work  in  gathering  data 
during  the  summer  convinced  the  managers  that  such  inves- 
tigations would  be  useless,  since  the  data  collected  from  dif- 
ferent stores  did  not  represent  the  same  things.  In  other  words, 
there  was  no  uniform  classification  of  elements  of  expense 
in  the  business.  Accurate  comparisons  could  not  be  made. 
As  a  preliminary  step  to  further  work  it  was  determined  to 
prepare  a  uniform  accounting  system.  "A  joint  committee 
composed  of  accountants  of  national  reputation  and  of  shoe 
men  most  representative  in  Boston  and  vicinity  was  secured. 
As  a  result  of  their  labors  and  counsel,  and  that  of  the  Bu- 
reau, the  Harvard  System  of  Accounts  for  Shoe  Retailers 
was  given  to  the  trade  early  in  19 12." 

A  large  number  of  shoe  retailers  the  country  over  have 
adopted  this  system,  and  the  number  is  rapidly  increasing.  A 
bulletin  giving  a  general  statement  of  the  results  found  dur- 
ing the  first  year  of  its  operation  was  published  by  the  Bureau 
in  May,  i9i]j^Reference  to  this  publication  will  be  made  in 
several  place^ff  this  work. 

Since  191 3  Harvard  University  has  made  studies,  similar 
to  the  shoe  retailers'  accounting,  for  w^holesale  shoe  dealers 
and  for  grocers,  both  retail  and  wholesale. 


Other  Investigations. — A  great  deal  has  been  written  on 
retail  accounting  during  the  last  three  or  four  years.     The 


58 


ECONOMICS    OF    RETAILING 


Burroughs  Adding  Machine  Company,  in  connection  with 
their  advertising,  conducted  an  investigation  on  how  retailers 
figure  their  profits,  and  found  a  considerable  variation  in 
methods.  A  large  number  of  returns  obtained  indicated  that 
many  retailers  were  in  error.  The  account  of  this  investiga- 
tion accompanied  by  suggestions  for  better  bookkeeping 
methods  was  published   widely   in  the  trade   papers   of   the 

country. 

Several  of  the  trade  papers  have  themselves  conducted 
service  bureaus  where  proper  accounting  methods  have  been 

promulgated. 

The  National  Association  of  Credit  Men  has  interested  it- 
self in  proper  retail  accounting  and  has  published  a  set  of 
rules  showing  what  items  of  expense  should  be  considered 
and  how.^  For  four  or  more  years  the  National  Implement 
and  Vehicle  Association  has  conducted  an  extensive  campaign 
for  accurate  cost-finding  in  retail  businesses  handling  agricul- 
tural implements  and  vehicles. 

Harry  B.  Mason,  editor  of  Bulletin  of  Pharmacy,  a  live 
trade  paper,  was  one  of  the  first  to  write  on  the  subject  of  cost 
accounts  for  retailers.  From  1905  down  to  the  time  of  writ- 
ing this  book  he  continuously  urged  through  the  editorials  of 
his  paper  and  by  addresses  before  trade  associations,  colleges, 
and  elsewhere  the  need  for  better  accounts.  The  fact  that 
Mr.  Mason's  work  did  not  begin  until  1905  or  thereabouts 
shows  how  recent  the  whole  movement  for  more  careful  anal- 
ysis of  retailing  is.  -^ 

A  remarkable  work  for  promoting  better  methods  of 
retail  accounting  has  been  performed  by  Thomas  A.  Fernley, 
of  Philadelphia.  As  secretary  of  various  national  trade  or- 
ganizations, Mr.  Fernley  compiled  a  large  number  of  facts  re- 
garding the  retail  trade  and  published  monographs  on  the  sub- 
ject, that  have  been  given  a  very  wide  distribution.     So  far 

»  See  Appendix   C  of  this  volume. 


THE   EXPENSES    OF   RETAILING 


59 


as  the  writer  has  learned,  these  were  the  first  publications  upon 
the  subject  of  scientific  retail  cost  accounting.^  In  conversa- 
tion with  Mr.  Fernley  the  writer  was  told  that  the  studies  pre- 
ceding these  publications  began  in  the  latter  90' s  and  were 
carried  on  by  both  Thomas  A.  Fernley  and  his  father,  T. 
James  Fernley,  secretary-treasurer  of  the  National  Hard- 
ware Association  of  the  United  States. 

William  H.  Ingersoll,  marketing  manager  for  Robert  H. 
Ingersoll  and  Brother,  has  worked  out  a  system  of  accounting 
for  retail  jewelers  that  has  been  found  acceptable,  and  has 
been  widely  adopted. 

Hart,  Schaffner  and  Marx,  the  Chicago  clothing  manufac- 
turers, have  devised  a  system  for  retail  clothing  stores  which 
is  described  in  a  pamphlet  entitled,  *'What  Do  You  Know 
About  Business?" 

In  1915  the  General  Jixtension  Division  of  the  University 
of  Minnesota,  through  a  committee  composed  of  retail  mer- 
chants, of  the  editor  of  one  of  the  trade  papers,  and  of  a 
representative  of  the  General  Extension  Division,  appointed  at 
the  first  short  course  for  merchants  held  during  February, 
1914,  issued  an  accounting  system  for  general  merchants. 

Several  private  concerns  as  well  as  individual  accountants 
specializing  in  retail  systems  have  broken  into  the  field  of 
retail  cost  accounts,  with  the  result  that,  while  the  movement 
is  of  comparatively  recent  date,  it  is  developing  with  great 

rapidity. 

In  19 1 6  the  Federal  Trade  Commission  issued  a  helpful 
pamphlet  on  "A  System  of  Accounts  for  Retail  Merchants." 
In  the  introduction  to  this  pamphlet,  Edward  N.  Hurley,  then 
Chairman  of  the  Commission,  stated : 

'The  Federal  Trade  Commission  has  found  that  the  ma- 
jority of  retail  merchants  do  not  know  accurately  the  cost  of 

^2~A~coilection  of  monographs,  ircluding  "Cost  of  Doing  Business"  and  the  "Right 
of  Way  to  Figure  Profits,"  was  published  in  1912  under  the  title  "Price  Maintenance." 
by   Thomas   A.    Fcriiky,    Philadelyhia. 


6o 


ECONOMICS   OF   RETAILING 


conducting  their  business  and  for  this  reason  they  are  unable  to 
price  their  goods  intelHgently.  There  must  be  decided  im- 
provement in  this  direction  before  competition  can  be  placed 
upon  a  sound  basis  and  before  we  can  expect  a  decrease  in  the 
heavy  business  death  rate  among  retail  merchants." 

Two  Distinct  Costs.— In  running  a  store  it  must  be  borne 
in  mind  that  a  retailer  must  make  two  distinct  kinds  of  di- 
rect outlays ;  first,  his  costs  for  goods,  and  second,  his  costs 
for  conducting  the  business.  If  one  may  compare  a  retailer's 
business  with  a  manufacturing  concern,  the  outlay  for  mer- 
chandise is  much  the  same  as  the  manufacturer's  outlays  for 
raw  material,  and  the  costs  of  conducting  the  retail  business 
are  similar  to  costs  of  manufacturing— labor,  rent,  general 

expenses,  etc. 

The  price  which  the  retailer  pays  for  the  goods  is  not 
their  total  cost  when  handed  over  the  counter  to  the  consumer, 
any  more  than  the  cost  of  raw  material  is  the  total  cost  of  the 
finished    product    that    the    manufacturer    offers    for    sale. 
Nothing  but  looseness  of  speech  and  of  thought  can  account 
for  the  common  use  of  the  word  profit  as  if  it  were  the  full 
difference  between  what  the  retailer  pays  for  the  goods  when 
he  buys  them  and  what  he  receives  for  them  when  he  sells 
them.     The  true  costs  of  the  goods  include  the  purchase  price 
plus  all  expenses  of  transportation,  drayage,  and  so  forth,  ne- 
cessary to  bring  the  goods  to  the  store.     Then  in  addition  to 
this  first  cost  of  the  goods  laid  down,  there  are  the  costs  of 
selling  them.     It  is  the  latter,  the  costs  of  selling  the  goods  in 
a  retail  store,  that  we  are  interested  in  outlining  in  this  chap- 
ter.    It  should  be  noted  in  passing  that  all  freight,  express, 
parcels  post,  and  cartage  on  incoming  goods  are  to  be  added 
to  and  considered  part  of  the  purchase  price  of  the  goods. 
Only  after  the  goods  actually  reach  the  store  can  the  selling 
expense  in  them  be  said  to  commence. 


THE   EXPENSES    OF   RETAILING  6l 

Classification  of  Retail  Store  Expenses 

I.  Buying  Expenses: 

1.  Salaries  and  wages  of  buyers  in  proportion  to  time  spent 

in  buying.  (All  time  consumed  in  examining  stock, 
making  stock  records,  ordering  goods,  inspecting  sales- 
men's samples,  and  all  time  used  in  buying  trips  should  be 
included.) 

2.  Traveling    expenses 

3.  Miscellaneous  expenses 

II.  Selling  Expenses: 

1.  Salaries    and   wages    of    sales    force.     (All    time    given    to 

selling  by  buyers  and  manager  should  be  included  under 
this    classification.) 

2.  Premiums,   commissions,  bonuses,   spiffs,   PM's,   and   prizes 

paid  for  sales  service  in  addition  to  salaries. 

3.  Advertising: 

(a)  Newspaper  and  periodical 

(b)  Circulars    and   letters 

(c)  Bill-boards,   electric   signs,   etc. 

(d)  Local   programs 

(e)  Window  displays 

(f)  Gifts,  premiums,   and  trading  stamps 

4.  Miscellaneous: 

(a)  Wrapping  paper,  twine,  etc. 

(b)  Free  alterations  and  repairs 

(c)  Expenses  and  losses  on  returns 

III.     Delivery    Expenses: 

1.  Wages  of  delivery  force  for  time  spent  in  delivering  goods 

to  customers 

2.  Stable  and  garage  expenses 

3.  Express,  mail,  and  freight  shipments 

4.  Miscellaneous 


IV.     Management  Expenses: 

I.  The  portion  of  the  salaries  of  the  managers  represented 
by  the  time  consumed  in  hiring  and  training  employees, 
supervising  the  work  of  the  store,  and  other  managerial 
work. 


THE  EXPENSES  OF  RETAILING 


62 


V. 


ECONOMICS   OF  RETAILING 

Office  Expenses: 

1.  Salaries  of  bookkeepers  and  stenographers  for  time  spent 

in  office  work 

2.  Salaries  of  cashiers,  inspectors,  and  office  messengers 

3.  Office  supplies: 

(a)  Stationery,  printing,  and  postage 

(b)  Account  books 

(c)  Miscellaneous 


63 


IV. 


Fixed  Charges: 

I.     Rent: 

(a) 

Store    premises 

(b) 

Storage  or  warehouse 

2.     Heat,  light,  and  power 

3.     Insurance 

• 
• 

(a) 

Fire 

(b) 

Burglary 

(c) 

Fidelity 

(d) 

Plate  glass 

(e) 

Employer's  liability 

(0 

Accident  elevator 

is) 

Sprinkler  system  water  damage 

(h) 

Warehouse 

(i) 

Boiler 

(J) 

Merchandise  en  route 

(k) 

Life   insurance  payable  to  firm 

4.     Taxes  on   stock  and  store  equipment 

VII.  Up-keep  and   Depreciation   Expenses: 
— 5 1.     Repairs  and  renewals  of  equipment 

-2.     Depreciation    of   equipment 
3.     Depreciation  of  merchandise  stock 

VIII.  Miscellaneous  Expenses: 

I.     Telephone  and  telegraph  expenses 


2. 

3- 
4- 

5- 


Water  and  ice 

Care  of  store,  janitor's  services,  cleaning,   etc. 
Expenses  of  collecting  slow  accounts 
Losses  from  bad  debts 


IX.     Interest  on   Net  Worth  of  Business  at  Current  Rat: 


Sales  Cost  Basis  vs.  Goods  Cost  Basis.—After  classifying 
the  expenses  of  a  store  according  to  the  foregoing  or  any  other 
method,  it  is  necessary  to  reduce  the  results  to  percentages 
before  they  may  be  compared  with  similar  results  recorded 
from  other  stores,  or  even  with  results  from  the  same  store  for 
years  past.  But  in  order  that  the  percentages  may  be  compared 
they  must  be  computed  upon  the  same  basis.     At  this  point 
there  is  much  disagreement  among  retail  store  accountants. 
Some  claim  that  the  costs  of  the  goods  should  be  used  as  the 
base,  while  others  insist  that  the  sales  cost  should  be  con- 
sidered as  the  base.     Trade  papers  have  teemed  with  articles 
on  both  sides.     Frank  E.  Goodwin  has  been  a  leader  in  the 
discussion  for  using  the  costs  of  the  goods  as  the  base,^  while 
the  National  Association  of  Credit  Men,  Burroughs  Adding 
Machine  Company,  Butler  Brothers,  the  National  Implemen't 
and  Vehicle  Associations,  the  Harvard  System  of  Accounts, 
as  well  as  many  of  the  trade  papers  have  urged  sales  cost 
as  the  proper  base  for  figuring  retail  expenses  and  profits.     It 
is  obvious  that  either  may  be  used  with  accuracy  if  adhered 
to  consistently.     The  trouble  that  has  arisen  has  been   due 
to  the  fact  that  dealers  have  very  generally  computed  some 
of  their  percentages  on  their  sales  and  others  on  costs.     This 
confusion  constitutes  the  chief  error  noted  in  actual  practice. 
There  seems  to  be  some  advantage,  however,  in  computing 
expense  and  profit  percentages  on  sales  rather  than  on  costst 
and  for  this  reason  all  percentages  in  this  book  are  based  on 
sales.     In  a  little  pamphlet  published  by  the  Burroughs  Add- 
ing   Machine    Company,    written    by    Thomas    A.    Fernley, 
'^twelve  reasons  why  the  percentage  of  profit  should  be  figured 
on  the  selling  price  and  not  on  the  cost"  are  given : 

I.     Because  the  remuneration  of  salesmen  is  figured  on  a 
certain  percentage  of  the  selling  price. 


3  << , 


'A    Cost    Accounting    Fallacy    Exposed,"    first    oubUsTiprl    oc    ,.,    -.-.*•  1      • 
American  Paint  and  Oil  Dealer,  June,    1912  PUDiished    as    an    article    m    the 


64 


ECONOMICS   OF   RETAILING 


2.  Because  the  percentage  of  expense  of  conducting  busi- 
ness is  based  on  the  seUing  price.  If  you  talk  per  cent  of 
profit  on  cost  and  per  cent  of  expense  on  the  selHng  price, 

where  are  you  ? 

3.  Because  the  mercantile  and  other  taxes  are  invariably 

based  on  a  percentage  of  the  gross  sales. 

4.  Because  the  sales  totals  are  always  given  in  books  of 
record,  cost  totals  are  seldom,  if  ever,  shown. 

5.  Because  a  profit  must  be  provided  for  two  items  of 
capital — one  the  capital  invested  in  merchandise — the  other 
the  capital  necessary  for  operating  expenses  and  other  ex- 
penditures not  properly  chargeable  to  merchandise  account. 
This  is  only  possible  by  figuring  profit  on  the  selling  price. 

6.  Because  it  indicates  correctly  the  amount  of  gross 
or  net  profit  when  amount  of  sales  is  stated.  The  percentage 
of  profits  on  sales  is  indicative  of  character  of  result  of  year's 
business — percentage  of  profit  on  cost  is  not. 

7.  Because  allowances  in  percentage  to  customers  are 
always  from  selling  price. 

8.  Because  no  profit  is  made  until  sale  is  actually  effected. 

9.  Because  nine  stores  in  ten  which  do  not  figure  on  the 
selling  price  get  mixed  somewhere  in  their  figures,  and  do 
not  know  whether  they  are  going  forward  or  backward. 

10.  Because  the  big  stores  figure  on  the  .selling  price. 

11.  Because  it  puts  the  retailer  where  a  customer  will  not 
be  so  likely  to  call  him  a  robber  if  he  learns  the  percentage 
of  profit.  Twenty  per  cent  of  the  selling  price  is  25  per 
cent  on  the  cost,  but  the  20  per  cent  does  not  seem  as  large 

an  amount. 

12.  Because  if  you  figure  on  the  selling  price  you  can 
go  to  the  cash  drawer,  and  say  ''10  per  cent  of  that  money 
is  my  profit"  instead  of  having  to  say  that  10  per  cent  of 
the  cost  of  the  goods  which  I  sold  for  that  money  is  my 
profit." 


THE  EXPENSES   OF  RETAILING 


65 


Expenses  Variable. — The  total  expenses  of  doing  a  retail 
business  vary  greatly.  The  causes  for  these  variations  may  be 
inferred  to  be  due  to  the  kind  of  business,  the  location,  the 
volume  of  business  done,  the  class  of  business  whether  high 
or  low  grade,  and  the  efficiency  with  which  it  is  conducted. 
Expenses  seem  to  vary  according  to  the  size  of  the  town — the 
larger  the  town,  the  higher  the  expense.  There  seems  to  be  a 
little  variation  between  the  different  parts  of  the  country. 
Pacific  Coast  and  Mountain  State  stores  have  expenses  run- 
ning  from  i  to  3  per  cent  higher  than  the  Middle  West,  while 
costs  seem  to  be  somewhat  less  in  the  South  than  in  the  North 
for  similar  classes  of  business.  The  averages  reported  by  the 
trade  papers  for  the  various  parts  of  the  country  are  remark- 
ably similar,  however,  for  the  same  kinds  of  businesses 

A  recent  article  contains  the  following  statement: 

"Location  counts.  One  per  cent  may  be  added  for  the 
Pacific  Coast  and  Mountain  States  (freight,  an  important 
but  variable  item,  is  not  considered)  and  one  per  cent  may 
be  deducted  for  the  Atlantic  Coast.  Rural  community  re- 
tailers may  safely  deduct  three  per  cent  from  the  averages,  and 
concerns  in  cities  of  over  400,000  add  two  per  cent."* 

Tlie  costs  of  doing  business  run  higher  in  well-to-do  com- 
munities than  in  the  less  prosperous  ones.  Almost  invariably 
the  costs  are  higher  in  manufacturing  and  commercial  towns 
than  in  agricultural  centers.  Taking  the  same  conditions, 
there  is  often  the  widest  variation  in  costs,  and  it  is  not  to  be 
presumed  that  higher  costs  always  indicate  lower  efficiency, 
though  this  is  frequently  the  case. 

Results  of  Cost  Investigations. — In  the  investigations  of 
the  costs  of  doing  business  in  dry-goods  and  ready-to-wear 
stores,  made  by  C.  C.  Parlin  for  the  Curtis  Publishing  Com- 
pany, the  following  results  were  obtained: 

*  System,  December,  1913.  page  569. 


66 


FXONOMICS   OF   RETAILING 

Costs  of  Doing  Retail  Business'' 
Dry-Goods  and  Women's  Ready-to-Wear 

(Including   Corporation   Salaries,   Buying  Expenses,   and   Freight) 


Cities 


600,000   up 

200,000  to  600,000 
10,000  to  200,000. 
2,500  to  10,000. . . 
Rural   stores 


In   the   East 


In  the  Middle 
West  and  South 


Range 

24-31% 

22-27 

20-25 

17-23 
10-20 


Ave. 

261/^% 

24 

22 
20 

17 


In  the  Pacific 

and  Mountain 

States* 


Range 

23-i8% 
20-26 
18-24 
11-20 


Ave. 

25% 

23 
21 
18 


♦Freight  to  Pacific  Coast  amounts  to  about  3  per  cent  and  to  the  Mountain 
States  4  per  cent  of  the  sales.  Reductions  to  this  amount  should  be  made  from  the 
last  column. 


The  Harvard  investigation  on  the  retailing  of  shoes  for 
its  first  year  ending  in  the  spring  of  191 3  and  embracing 
observations  of  more  than  130  shoe  stores,  showed  the  fol- 
lowing cost  of  selling: 

Cost  of  Selling  in  Retail  Shoe  Stores'* 


Principal  Items 
of  Expense 


Buying  . . . 
Sales  force 
Advertising 
Deliveries 

Rent 

Interest  . . . 


Range 
(Total  expense 
18-35%) 


Modal  Group 

(Total  Expense 

Low  Grade  23% 

High  Grade  27%) 


0.8-   1.8% 
5.0-10.3 

0.0-  8.8 
0.0-  1.4 
I. 8-14. 6 
i.o-  7.9 


1.1% 

8.0 
2.0 
0.6 
5.0 
2.5 


Most  Efficient 

Group 
(Total  Expense 
Low  Grade  20% 
High  Grade  25%) 

1.0% 

7.0 

1.5 

0.4 

30 

2.0 


(Curtis  Publishing  Co.) 


.•Buf";?n'  fr."i.?BSr?au  Tl&.^"^lclrii^rH^^i'Vni..r.i.r.   Number    ,, 
May,   1913- 


THE   EXPENSES    OF   RETAILING 


67 


It  IS  to  be  noted,  however,  that  a  large  number  of  the 
figures  upon  which  these  percentages  are  based  came  from 
stores  in  "the  eight  large  cities— New  York,  Philadelphia, 
Baltimore,  Pittsburgh,  Cleveland,  Detroit,  Chicago  and  Cin- 
cinnati." This  probably  accounts  for  the  wide  range  in  total 
expense,  and  probably  also  for  the  difference  between  these 
figures  and  those  found  by  the  writer  in  eight  Wisconsin  shoe 

stores. 

The  writer's  own  investigations  among  stores  in  Wis- 
consin show  the  following  results : 

Costs  of  Doing  Retail  Business  in  Wisconsin 


Kind  of 
Business 

Grocery    

Dry-goods    

Furniture     

Shoes    

Hardware    

Men's  clothing 

Drugs   

Jewelry     

Department   stores 

Five  and  ten  cent  stores 


No.  of 
Stores 

17 
II 
8 
8 
8 
7 
3 
4 
II 

2 


Range 

Modal  Group 

No. 

Falling 

With 

in  Mode 

12-22% 

14/2-17% 

II 

16-25 

11-22 

6 
6 

22-28 

22-24 

16-27 

21-23 

4 

17-26 

19-22 

4 

20-30 

27-30 

3 

24-30 

•  •  •  • 

• 

25-32 

28 

2 

22-30 

26-27 

5 

25-27 

•  •  •  • 

• 

Accurate  Data  Unavailable. — An  amount  of  data  sufficient 
to  make  an  accurate  descriptive  analysis  of  all  of  the  details 
that  enter  into  the  expenses  of  retailing  and  the  causes  for 
their  variation  is  not  yet  available.  It  is  not  likely  that  there 
ever  will  be  fully  satisfactory  information  upon  these  points 
until  the  federal  government  can  be  induced  to  make  nation- 
wide investigations  in  this  line,  much  as  the  Department  of 
Agriculture  now  studies  and  reports  agricultural  conditions.  In 
the  chapters  which  follow  the  writer  has  taken  what  facts  are 
available  and  in  coming  to  more  or  less  tentative  conclusions 
has  made  such  use  of  them  as  seems  warranted.     The  next 


k' 


68 


FXONOMICS    OF   RETAILING 


Step  in  this  field,  as  well  as  in  many  other  branches  of  econ- 
omics, is  not  theorizing  but  the  gathering  of  more  facts,  and 
this  is  a  work  that  should  be  performed  in  the  interest  of  all 
business  by  the  government  or  by  some  branch  of  the 
government. 

Bibliography 

Federal  Trade  Commission.     A  System  of  Accounts  for  Retail  Mer- 
chants.     1916. 
Fernley,    Thomas    A.     Price    Maintenance.     Commerce    Pub.    Co., 

Philadelphia.     1912. 
Goodwin,  F.   E.     Cost  Accounting  Pathfinder.     Midland   Publishing 

Co.,  Columbus,  Ohio.     1910. 
Harvard   University,   Graduate    School   of   Business   Administration. 

Harvard  System  of  Accounts  for  Shoe  Retailers.     1914. 
Mason,  H.   B.     The   Druggists  and  his  Profits.     E.   G.   Swift,  Yar- 

mouthport,  Mass.     191 5. 
Nystrom,  P.  H.     Retail   Stores  Management.     La  Salle  Ext.     Uni., 

Chicago.     1917. 

Sammons,  W.  Keeping  up  with  Rising  Costs.  (This  interesting 
book  first  appeared  as  a  series  of  articles  in  System.  It  contains 
summaries  of  cost  of  doing  business  in  1560  stores  scattered 
over  the  country,  from  which  conclusions  are  drawn  showing 
how  to  meet  the  rising  costs  tendency.) 

Walker,  J.  C.  Retail  Accounting  and  Store  Management.  South- 
western Publishing  Co.,  Cincinnati,  Ohio.     1916. 


CHAPTER  VI 


RETAIL  SALESPEOPLE  AND  THEIR  WORK 

Division  of  Labor  in  Retail  Store.— The  real  work  of  the 
retail  store  is,  of  course,  to  sell  goods.  Therefore  the  sales- 
people inay  be  called  the  "productive"  help  of  the  store.  It  is 
mainly  with  salespeople  that  the  public  comes  in  contact  and 
upon  the  efficiency  of  their  work  hangs  the  success  of  the 

store. 

But  selling  goods  is  not  the  only  work  to  do  in  a  store. 
Before  goods  can  be  sold  they  must  be  bought,  handled,  un- 
packed, stored,  displayed,  repacked  or  wrapped,  and  delivered. 
Office  records  and  accounts  must  be  kept,  correspondence  car- 
ried on,  advertisements  written,  and  so  on.  Finally  the  store 
building  must  be  kept  clean  and  in  good  condition  for  selling. 
All  of  this  work  is  carried  on  in  order  to  make  it  possible  to 

sell  goods. 

There  is  then  a  division  of  labor  in  a  store  which  may  be 

roughly  outlined  as  follows : 

Actual  selling   "• 5^% 

Office  work    ^^^ 

Stock    marking,  etc ^/^ 

Delivery    %° 

Care  of  building   5/^ 

Other  work    '  ^^/^ 

Total    ^^^^^ 

In  small  stores  all  of  these  various  kinds  of  work  may  l^e 
done  by  the  same  person.  As  the  size  of  the  store  and  the 
number    of    employees    increase,    these    duties    are    divided 

69 


70 


ECONOMICS   OF   RETAILING 


Up  and  apportioned  off  to  individuals.  In  large  department 
stores  one  may  find  employees  whose  duties  are  so  simple 
and  so  few  that  they  may  easily  be  defined  in  a  very  few 
sentences. 

There  is  considerable  variation  in  the  proportions  of  va- 
rious kinds  of  work  done  in  retail  stores.  It  can  readily 
be  seen  that  stores  which  do  not  give  delivery  service  would  not 
have  a  delivery  division  of  work.  These  stores  would  show  a 
larger  proportion  of  actual  selling  labor.  The  same  is  true  to  a 
degree  for  stores  which  do  not  grant  credit.  In  the  recent 
innovations  of  serve-self  stores,  the  proportion  of  actual 
selling  labor  would  be  cut  down.  The  table  given  above 
merely  presents  the  average  condition  in  general  merchandise 
stores  and  department  stores. 

Amount  of  Sales  Work.— That  fully  half  of  the  work  of  a 
retail  store  is  something  else  than  selling  may  be  surprising 
to  many  people.  Failure  to  keep  this  fact  in  mind  is  the  cause 
of  considerable  misconception  of  the  real  function  of  retailing. 
It  is  really  something  more  than  ''buying,  selling,  and  taking 
toll  in  goods  passing  from  producer  to  consumer." 

Men  and  Women  in  Retail  Stores. — The  proportions  of 
men  and  women  employed  in  retail  stores  is  a  point  of  inter- 
est. Taking  the  country  as  a  whole  according  to  the  census, 
salesmen  in  stores  are  about  three  times  as  numerous  as  sales- 
women. But  in  large  stores  in  the  large  cities  the  ratio  is 
almost  exactly  reversed.  In  department  stores  and  5  and 
10  cent  stores  there  are  from  four  to  six  times  as  many 
women  as  men  employed. 

The  following  table  drawn  from  the  United  States  report, 
"Wage-Earning  Women  in  Stores  and  Factories,"  Vol. 
v.,  ''Woman  and  Child  Wage-Earners  in  the  United  States," 
page  41,  shows  the  distribution  of  women  employees  by  oc- 


RETAIL  SALESPEOPLE  AND  THEIR  WORK  71 

cupations  in  26  department  stores  of  New  York,   Chicago, 
and  Philadelphia,  employing  a  total  of  36,(X)0  women. 

Percentage 
of    Whole 

Saleswomen 462  /o 

Cash     girls,     messengers,     inspectors,     bundle 

wrappers,  and  packers   i3-2 

Office  employees   i?-^ 

Buyers  and  assistant  buyers    i-2 

Other  employees 21.8 

100% 

From  the  above  it  appears  that  of  all  the  labor  that  women 
are  employed  to  do  in  large  stores,  selling  constitutes  a  little 
less  than  one-half. 

The  entrance  of  women  mto  the  field  of  retail  salesman- 
ship is  one  of  the  noteworthy  developments  of  the  retail  busi- 
ness since  the  middle  of  the  nineteenth  century.  They  were 
first  employed  on  a  large  scale  in  some  of  the  largest  dry-goods 
stores  of  New  York,  and  soon  after  in  the  dry-goods  and 
department  stores  of  practically  every  other  city. 

In  a  work  published  in  New  York  in  1856  it  was  stated 
that  the  employment  of  ladies  as  clerks  in  stores,  especially 
in  dry-goods  .stores,  was  becoming  very  general  in  America.' 
But  with  the  development  of  the  department  stores  beginning 
in  the  70's,  and  the  notion  and  variety  goods  stores,  best  typi- 
fied today  in  the  5  and  10  cent  stores,  the  employment  of 
women  as  salespeople  seems  to  have  received  its  main  ad- 
vancement. 

Serving  the  Customer. — The  work  of  the  salespeople  is  to 
represent  the  store  in  the  sale  of  its  goods.  The  existence  of  a 
store  depends  upon  two  things ;  on  the  one  hand,  the  possibility 
of  serving  customers,  and,  on  the  other  hand,  the  possibility  of 
getting  a  remuneration  or  profit  for  performing  that  service. 

»  Hunt,  F.,  "Worth  and  Wealth,"  page  499. 


iiifirii>i 


72 


ECONOMICS   OF   RETAILING 


RETAIL  SALESPEOPLE  AND  THEIR  WORK 


73 


The  work  of  the  salespeople  must  therefore  be  such  as  to  sat- 
isfy customers  and  bring  profits  to  their  employers  at  the  same 
time. 

The  salesman's  service  to  the  customer  consists  in  showing 
the  goods  the  store  has  gathered  together  for  sale,  explaining 
and  demonstrating  the  qualities  and  uses  of  these  goods,  and 
helping  to  make  suitable  selections  or  secure  proper  fittings. 
For  this  service  the  salesman  presumably  has  had,  or  should 
have  had,  special  training,  so  that  the  assistance  given  to  the 
customer  may  have  an  expert  or  quasi-professional  nature. 
After  prices  reach  stable  levels,  the  natural  development  of 
competition  between  dealers  leads  towards  a  better  grade  of 
selling  service  to  customers.  Since,  according  to  the  view  of 
many  merchandisers,  the  general  levels  of  retail  prices  and 
necessary  profits  within  given  classes  of  retail  stores  have  been 
fairly  well  established,  we  may  expect  to  see  a  more  rapid  and 
more  general  improvement  in  sales  service  in  the  future  than 
that  obtained  in  the  past. 

"Making  the  Connection." — But  the  salesman  in  a  retail 
store  cannot  confine  his  entire  attention  to  the  interests  of  the 
customer.  Such  singleness  of  purpose  might  occasionally 
result  in  directing  a  prospective  customer  for  a  particular  ar- 
ticle to  a  competitor's  store.  Such  cases  are  not  unknown.  It 
would  be  eminently  desirable  if  such  practices  could  be  in- 
creased. Such  co-operation  could  be  carried  out  in  a  town 
in  which  each  store  agreed  to  handle  certain  lines,  to  confine  it- 
self to  these  only,  and  to  direct  customers  for  other  lines  to  the 
other  stores.  The  usual  interests  of  business,  however,  re- 
quire that  the  customer  must  be  supplied,  if  possible,  from  the 
store's  stock.  It  is  presumed  that  the  buyer  for  the  store  has 
exercised  good  judgment  in  selecting  suitable  stocks  of  goods, 
and  that  the  people  who  enter  the  store  may  want  to  purchase 
something  from  the  lines  represented  by  those  stocks.     It  is 


I 


the  business  of  the  retail  salespeople  to  make  the  connections 
between  the  store's  goods  and  the  customers'  wants,  if  it  is  at 

all  possible  to  do  so. 

In  the  selection  and  purchase  of  goods  most  customers  are 
governed  by  a  variety  of  considerations — many  of  which  are 
purely  matters  of  opinion  having  no  reasonable  basis.  Likes 
and  dislikes  cannot  always  be  logically  explained  and 
in  many  instances  are  subject  to  frequent  and  radical  changes. 
People  want  what  they  think  they  want,  and  what  they  think 
they  want  depends  largely  upon  their  knowledge  of  goods  and 
their  habits  of  using  them.  To  influence  the  customer  in  favor 
of  his  goods,  therefore,  the  salesman  must  convey  as  many 
ideas  as  he  can  concerning  those  goods — their  qualities,  uses, 
the  satisfaction  that  may  be  derived  from  their  use,  and  so  on. 

Satisfying  Desires. — The  average  customer  has  a  great 
number  of  desires,  only  some  of  which  he  can  satisfy  with 
the  money  at  his  disposal.  These  desires  compete  for  satis- 
faction in  his  own  mind.  For  purposes  of  clearness  we  may 
consider  them  in  two  categories — desires  for  entirely  different 
classes  of  goods,  and  desires  for  goods  of  the  same  kind  but 
of  different  qualities.  All  of  these  desires  are  of  unequal  in- 
tensity. Among  goods  of  different  kinds,  desires  will  tend 
to  be  satisfied  in  ord[f  r  of  intensity.  For  example,  if  a  work- 
ingman  feels  that  he  needs  a  new  hat,  a  pair  of  shoes,  and  a 
pair  of  gloves,  but  does  not  feel  that  he  can  afford  to  buy 
all  three  at  the  same  time,  he  will  decide  to  take  that  which 
he  feels  he  needs  the  most  at  the  present  time.  At  a  later 
time  he  will  take  what  he  then  needs  most,  and  so  on.  He  may 
purchase  the  shoes  first,  the  gloves  a  week  later,  and  the  hat 
a  week  after  that.  Among  goods  of  the  same  kind,  the  cus- 
tomer selects  that  which  promises  the  greatest  amount  of  sat- 
isfaction— such  as  wear,  comfort,  and  appearance — for  his 
money. 


■^J 


74 


ECONOMICS   OF   RETAILING 


Influencing  a  Decision. — A  salesman  handling  gloves 
might  in  many  cases  show  to  the  man  who  had  decided  to  buy 
shoes  that  a  pair  of  gloves  would  be  more  desirable.  He 
might  point  out  that  the  customer's  shoes  could  be  resoled 
and  that  they  would  then  wear  for  a  long  time  to  come,  and 
that  the  oncoming  cold  weather  would  make  it  very  disagree- 
able to  get  along  without  gloves,  and  finally  that  the  cost  of  re- 
pairing the  shoes  and  of  a  new  pair  of  gloves  might  not  be  more 
than  for  a  new  pair  of  shoes.  By  following  the  salesman's 
suggestion  the  customer  would  thus  have  not  only  his  feet 
cared  for  serviceably,  but  also  his  hands;  whereas,  otherwise 
he  would  have  to  stand  the  discomfort  of  going  barehanded 
for  another  week.  Supplementing  these  ideas,  the  salesman 
would  show  the  customer  suitable  gloves,  point  out  their  de- 
sirable qualities— durability,  comfort,  warmth,  and  good 
appearance — and  thus  help  to  build  up  the  customer's  thoughts, 
and  consequently  his  desire  for  gloves. 

A  customer  who  has  decided  upon  what  kind  of  goods 
he  wants,  is  still  confronted  by  the  problem  of  getting  the 
most  for  his  money.  There  are  many  kinds  of  shoes  of  many 
different  qualities.  The  work  of  the  salesman  is  to  find  the 
shoe  from  his  stock  that  will  serve  the  customer  best,  and 
then  explain  it,  fit  it,  and  get  the  customer  to  appreciate  it  more 
highly  than  any  competing  shoe. 

"Getting  Your  Money's  Worth."— What  the  salesman  does 
in  either  case  may  be  summarized  as  follows :  He  presents  to  the 
customer's  mind  by  all  possible  methods,  ideas  about  his  goods 
that  will  build  up  a  favorable  impression,  so  that  when  it 
comes  to  the  time  of  deciding  what  to  buy,  the  customer's 
desire  for  the  given  article  that  the  salesman  is  trying  to  sell 
is  clearly  much  stronger  than  any  desire  he  might  have  for 
other  goods  of  either  the  same  or  a  different  kind.  Using 
the  economist's  term,  "marginal  utility,"  which  simply  means 


RETAIL  SALESPEOPLE  AND  THEIR  WORK 


75 


the  intensity  of  demand  felt  for  any  goods,  we  may  say 
that  the  marginal  utility  for  almost  any  article  is  an  extremely 
variable  thing  with  most  people,  not  only  as  between  different 
things  but  also  for  the  same  thing  considered  at  different  times 
and  under  different  circumstances  for  any  one  person.  What 
the  salesman  does  for  his  employer  is  to  raise  the  marginal 
utility  of  the  article  he  is  trying  to  sell  to  such  a  point  that 
in  the  customer's  mind  it  overtops  the  marginal  utility  of  all 
other  goods  at  that  particular  time. 

The  question  may  be  raised  at  this  point  as  to  whether 
this  is  in  the  interests  of  the  consumer  and  of  society  at  large. 
In  answer  it  may  be  pointed  out  that  desires  had  to  be  aroused 
and  intensified  in  order  to  introduce  into  general  use  prac- 
tically every  article  of  modern  convenience  and  comfort.     It 
was  salesmanship  that  put  the  sewing  machine,   range,   gas 
stove,  electrical  appliance,  musical  instrument,  washing  ma- 
chine! and  vacuum  cleaner  into  the  home.     Salesmanship  has 
introduced  practically  all  great  improvements  and  devices  into 
every  line  of  business  and  industrial  life.     Without  salesmen 
our  present  material    development    would    be    inconceivable. 
Salesmen  are  the  present-time  teachers  of  the  people  in  the 
arts  of  progress,  and  as  such  rank  with  the  schools  and  the 
press. 

Salesmanship  as  a  Social  Good.— The  social  importance 
of  good  salesmanship  can  be  pointed  out  very  well  by  show- 
ing the  failures  of  salespeople  of  the  past  generation.  As  one 
goes  through  homes  and  notes  the  incongruous  furnishings, 
lacking  both  in  art  and  in  usefulness,  one  cannot  help  but 
think  of  the  wasted  opportunity  of  salesmen  to  point  out  to 
purchasers  how— and  generally  without  additional  expense— 
they  might  have  improved  their  homes.  Much  of  the  wastes  of 
American  cookery  in  the  towns  and  cities  could  be  eliminated 
by  a  word  of  advice  given  by  skilled  grocers'  salesmen  now 


74 


ECONOMICS    OF   RETAILING 


Influencing  a  Decision.— A  salesman  handling  gloves 
might  in  many  cases  show  to  the  man  who  had  decided  to  buy 
shoes  that  a  pair  of  gloves  would  be  more  desirable.  He 
might  point  out  that  the  customer's  shoes  could  be  resoled 
and  that  they  would  then  wear  for  a  long  time  to  come,  and 
that  the  oncoming  cold  weather  would  make  it  very  disagree- 
able to  get  along  without  gloves,  and  finally  that  the  cost  of  re- 
pairing the  shoes  and  of  a  new  pair  of  gloves  might  not  be  more 
than  for  a  new  pair  of  shoes.  By  following  the  salesman's 
suggestion  the  customer  would  thus  have  not  only  his  feet 
cared  for  serviceably,  but  also  his  hands;  whereas,  otherwise 
he  would  have  to  stand  the  discomfort  of  going  barehanded 
for  another  week.  Supplementing  these  ideas,  the  salesman 
would  show  the  customer  suitable  gloves,  point  out  their  de- 
sirable qualities — durability,  comfort,  warmth,  and  good 
appearance — and  thus  help  to  build  up  the  customer's  thoughts, 
and  consequently  his  desire  for  gloves. 

A  customer  who  has  decided  upon  what  kind  of  goods 
he  wants,  is  still  confronted  by  the  problem  of  getting  the 
most  for  his  money.  There  are  many  kinds  of  shoes  of  many 
different  qualities.  The  work  of  the  salesman  is  to  find  the 
shoe  from  his  stock  that  will  serve  the  customer  best,  and 
then  explain  it,  fit  it,  and  get  the  customer  to  appreciate  it  more 
highly  than  any  competing  shoe. 

"Getting  Your  Money's  Worth." — What  the  salesman  does 
in  either  case  may  be  summarized  as  follows :  He  presents  to  the 
customer's  mind  by  all  possible  methods,  ideas  about  his  goods 
that  will  build  up  a  favorable  impression,  so  that  when  it 
comes  to  the  time  of  deciding  what  to  buy,  the  customer's 
desire  for  the  given  article  that  the  salesman  is  trying  to  sell 
is  clearly  much  stronger  than  any  desire  he  might  have  for 
other  goods  of  either  the  same  or  a  different  kind.  Using 
the  economist's  term,  "marginal  utility,"  which  simply  means 


RETAIL  SALESPEOPLE  AND  THEIR  WORK 


75 


the  intensity  of  demand  felt  for  any  goods,  we  may  say 
that  the  marginal  utility  for  almost  any  article  is  an  extremely 
variable  thing  with  most  people,  not  only  as  between  different 
things  but  also  for  the  same  thing  considered  at  different  times 
and  under  different  circumstances  for  any  one  person.  What 
the  salesman  does  for  his  employer  is  to  raise  the  marginal 
utility  of  the  article  he  is  trying  to  sell  to  such  a  point  that 
in  the  customer's  mind  it  overtops  the  marginal  utility  of  all 
other  goods  at  that  particular  time. 

The  question  may  be  raised  at  this  point  as  to  whether 
this  is  in  the  interests  of  the  consumer  and  of  society  at  large. 
In  answer  it  may  be  pointed  out  that  desires  had  to  be  aroused 
and  intensified  in  order  to  introduce  into  general  use  prac- 
tically every  article  of  modern  convenience  and  comfort.  It 
was  salesmanship  that  put  the  sewing  machine,  range,  gas 
stove,  electrical  appliance,  musical  instrument,  washing  ma- 
chine, and  vacuum  cleaner  into  the  home.  Salesmanship  has 
introduced  practically  all  great  improvements  and  devices  into 
every  line  of  business  and  industrial  life.  Without  salesmen 
our  present  material  development  would  be  inconceivable. 
Salesmen  are  the  present-time  teachers  of  the  people  in  the 
arts  of  progress,  and  as  such  rank  with  the  schools  and  the 
press. 

Salesmanship  as  a  Social  Good. — The  social  importance 
of  good  salesmanship  can  be  pointed  out  very  well  by  show- 
ing the  failures  of  salespeople  of  the  past  generation.  As  one 
goes  through  homes  and  notes  the  incongruous  furnishings, 
lacking  both  in  art  and  in  usefulness,  one  cannot  help  but 
think  of  the  wasted  opportunity  of  salesmen  to  point  out  to 
purchasers  how — and  generally  without  additional  expense — 
they  might  have  improved  their  homes.  Much  of  the  wastes  of 
American  cookery  in  the  towns  and  cities  could  be  eliminated 
by  a  word  of  advice  given  by  skilled  grocers'  salesmen  now 


76 


ECONOMICS   OF  RETAILING 


and  then.  It  is  said  by  shoemen  that  at  least  75  per  cent  of 
adults  have  trouble  with  their  feet — corns,  bunions,  ingrowing 
toe-nails,  broken-down  arches,  and  so  on.  Most  of  these  trou- 
bles are  directly  traceable  to  poor  shoe  fittings;  in  other  words, 
poor  shoe  salesmanship.  Much  of  the  waste,  inefficiency,  and 
even  suffering  due  to  badly  furnished  homes,  poor  clothing, 
badly  fitted  garments  and  shoes,  wrongly  selected  foods, 
and  so  forth,  are  chargeable  to  a  very  large  extent  to  bad 
retail  salesmanship.  One  should  not  overlook  the  responsi- 
bility of  the  consumer  for  being  in  the  plight  he  is  often  in, 
but  the  work  of  the  retailer  and  his  salespeople  as  purchasing 
and  distributing  agents  for  the  community  might  well  include 
such  education  of  the  consumer  in  the  use  of  materials  as  the 
retailer  and  his  salesmen  are  best  fitted  to  give.  There  is 
unbounded  opportunity  for  progress  along  these  lines. 

Evils  of  Salesmanship. — It  is  not  to  be  inferred  because 
of  the  great  social  services  the  salesmen  perform,  and  the 
still  greater  ones  for  which  there  are  opportunities,  that  there 
are  no  evils  connected  with  selling.  There  can  be  no  doubt 
that  many  people  are  led  to  place  too  high  estimations  of  value 
upon  certain  goods  which  common  sense  would  dictate  should 
be  placed  in  a  subordinate  order.  But  purchases  made  by 
consumers  are  largely  dictated  by  custom,  and  the  ultimate 
satisfaction  derived  from  the  purchase  must  determine  the  wis- 
dom of  the  purchase  and  its  value  in  comparison  with  other 
possible  purchases.  If  its  use  results  in  comparatively 
little  satisfaction,  then  we  may  say  that  the  purchase  was  un- 
wise; otherwise,  not.  Many  a  purchaser  has  been  called  a 
fool  by  his  acquaintances  for  investing  in  a  new  contrivance 
which  ultimately  brought  him  great  results,  and  many  an 
unwise  purchase  has  been  made  by  consumers  where  no  sales- 
man's persuasion  had  anything  to  do  with  it  whatever.  It  is 
likely  that  no  more  people  have  been  deluded  into  buying 


RETAIL  SALESPEOPLE  AND  THEIR  WORK 


11 


things  they  did  not  need  and  could  not  get  full  value  from, 
than  have  been  deluded  into  voting  the  wrong  ticket  and  for 
the  wrong  men  in  politics,  or  into  taking  any  other  unwise 
individual  or  social  action.  Evils  in  other  lines  do  not  excuse 
evils  in  selling,  but  an  understanding  of  the  general  prevalence 
of  such  evils  causes  one  to  take  a  broader  view  of  the  matter. 
One  of  the  main  results  to  be  hoped  for  from  a  thorough 
system  of  educating  salespeople  for  their  work  is  a  clearer 
and  keener  conscience  upon  this  point.  It  may  be  noted  that 
the  practice  now  followed  by  many  stores  of  exchanging  good-, 
or  of  refunding  the  purchase  price,  if  customers  are  not 
satisfied  with  the  goods,  offers  almost  a  complete  remedy. 


Dishonesty. — The  great  evils  frequently  associated  with 
salesmanship  are  dishonesty  and  misrepresentation.  If  goods 
are  declared  to  possess  qualities  which  they  do  not  possess,  and 
which  the  customer  cannot  safely  pass  judgment  upon,  a  great 
wrong  is  perpetrated.  Under  such  circumstances  the  customer 
buys  thinking  that  he  is  receiving  what  he  is  really  not  getting 
at  all.  Much  of  this  dishonesty  appeared  in  the  old  time 
^'puffing"  of  goods,  horse  traders'  bragging,  and  merchants' 
higgling.  Much  of  it  has  survived,  though  in  decreasing  pro- 
portions, down  to  the  present  day.  The  attempt  is  now  under 
way  to  purge  advertising  of  this  fault ;  and  the  next  step  is  to 
hold  salespeople  equally  responsible  for  every  statement  they 
make.  t 

A  most  insidious  form  of  dishonesty  in  selling  is  that 
committed  by  manufacturers  who  adulterate  or  misbrand  their 
products.  Retail  salesmen  may  be  and  are,  in  many  cases, 
as  helpless  before  this  form  of  dishonesty  as  the  customers 

themselves. 

Nothing  but  close  public  supervision  and  regulation  will 
eliminate  such  forms  of  dishonesty.  Opponents  of  public 
interference  in  business  must  bear  in  mind  that  rules  are  neces- 


\ 


g  ECONOMICS   OF  RETAILING 

sary  in  all  situat.ons  where  people  con,e  together  whether  it 
be  a  ga..e  or  a  public  assembly.  The  purpose  o*  *ese  rules 
IT  so  to  regulate  business  as  a  whole  as  to  prov.de  fa.r  play 
for  all  concerned. 

Factors  of  Successful  Selling.-The  factors  of  successful 
salesmanship  are  the  salesperson's  knowledge,  expenence,  at- 
titude towards  the  work,  and  personality. 

m  knowledge  referred  to  is  that  which  applies  directly 
to  t^vork  o  the  retail  store-knou^ledge  of  the  qual^Hes  and 
iToft^ goods  sold  and  the  ability  to  describe  them  properly 
rprospecdve  customers;  knouMge  of  /^co/,/.  their  trait 
and  w"vs  of  thinking,  their  ways  of  using  goods,  thar  method, 
of  a  rSng  at  an  appreciation  of  values,  their  standards  o   Iv- 

person  in  the  customer's  mind,  -f  ^      Jj^^^^^^^     f,,,rable 

of  all  kinds   an  opt-'stic  view  of  li  e  and^^  J    ^^^  ^^^^_ 
thusiasm  and  ambition.     The  '^^'^^  ^^^^  ^e  is  one 

believe,  that  he  has  a  great  work  ^o  Perform, 

of  the  luckiest  of  --^^'^  ^^'^^^^.J^tr TsCpos^ble  friend. 

every  P-^-^^rTara  Teelm    oTf^Ln^^^         to  all  people 
rrb^eroste^:llt^e:^of^his  attitude. 


in 


RETAIL  SALESPEOPLE  AND  THEIR  WORK 


79 


Personality  is  a  great  factor  in  all  kinds  of  selling.  It 
is  not  only  the  goods  themselves  but  the  manner  in  which 
they  are  to  be  sold  that  counts  in  marketing.  Every  detail 
of  the  salesman's  personality,  whether  pleasing  or  otherwise, 
exerts  an  influence  on  the  customers  with  whom  the  sales- 
man comes  in  contact.  This  influence  is  not  by  any  means  the 
same  on  all.  Each  element  of  personality  has  its  own  peculiar 
effect  on  each  customer.  But  in  general,  the  salesman  with 
a  disagreeable  personality  loses  a  certain  percentage  of  the 
sales  that  a  salesman  with  pleasing  personality  would  hold. 

Personal  habits,  individual  peculiarities,  appearance,  and 
manners  all  count  in  the  make-up  of  pleasing  personality.  To 
many  customers  the  use  of  tobacco,  liquor,  and  chewing  gum 
are  offensive.  A  bad  breath,  harsh  voice,  too  loud  speaking, 
and  indirectness  of  manner  are  likewise  generally  irritating 
to  a  large  number.  Since  the  majority  of  customers  are 
women,  the  type  of  personality  that  pleases  them  rather  than 
men,  so  far  as  a  differentiation  can  be  made,  is  to  be  preferred. 
Friendliness,  courtesy,  deference,  sincerity,  and  tactfulness  are 
essential  attributes. 

Meeting  a  Difficult  Situation.— There  are  many  trying 
situations  constandy  arising  in  a  retail  store  that  make  it 
difiicult  for  any  salesperson  to  pursue  an  ideal  course.  Es- 
pecially are  the  younger  ones  tempted  to  assert  combativeness 
or  antagonism  to  certain  types  of  customers.  There  is  a 
strong  tendency  in  this  country,  as  elsewhere,  towards  caste 
and  class  ideals.  Many  shoppers  look  upon  salesgirls  as  a 
class  of  servants.  This  is  frequently  resented.  A  large  num- 
ber of  the  young  women  who  are  employed  in  stores  have 
chosen  this  kind  of  work  rather  than  domestic  service,  even 
at  a  lower  net  wage,  simply  because  store  work  seemed  to 
offer  them  a  higher  class  or  plane  of  social  life.  They  are, 
therefore,   socially   ambitious;   and   when   the   shopper   looks 


4> 


80 


ECONOMICS   OF   RETAILING 


down  upon  them  as  a  class  beneath,  they  are  hkely  to  disre- 
gard the  possibihty  of  making  sales,  and  think  only  of  show- 
ing the  customer  a  spirit  of  independence  and  an  attitude  of 
"I  am  as  good  as  you."  Such  salespeople  rebel  unconsciously 
at  the  bearing  of  a  shopper  who  looks  at  the  saleswoman  as  a 
maid  or  servant.  The  more  successful  salespeople  are  able 
to  look  upon  all  such  situations  in  a  philosophical  manner, 
while  rendering  the  service  that  the  shopper  exacts  in  the 
manner  desired. 

Health  and  Education.— The  underlying  bases  of  the  fac- 
tors of  successful  salesmanship  are  clearly  good  health  and 
proper  education,  or,  in  other  words,  a  good  physical  and 
mental  equipment.     Proper  education,  we  are  coming  to  un- 
derstand, includes  not  only  a  training  of  the  mind  to  perform 
mental  tasks,   but  also  the  ability  to  control  and  mold  the 
body  to  the  uses  of  the  mind.     In  a  certain  sense,  proper 
education  is  one  of  the  first  requisites  to  good  health,   for 
health  depends  largely  if  not  entirely  upon  proper  attention 
to  such  matters  as  food,  fresh  air,  clothing,  rest  and  sleep, 
and  exercise.     Tlie  proper  use  of  these  does  not  come  natur- 
ally to  anyone     Experience  is  the  source  of  the  knowledge  of 
rieht  living  for  most  people,  but  experience  is  a  costly  teacher. 
Training  under  the  direction  of  skilled  teachers,  whether  in 
person  or  through  books,  promises  much  greater  returns. 

The  Gifts  of  Health.— Good  health,  a  clear  mind,  and 
plenty  of  surplus  energy  when  well  directed  are  magnets  of 
trade  and  sales.  The  influence  of  health  on  disposition  and 
personality  is  well  recognized,  as  is  also  its  influence  on  mem- 
ory and  clear  thinking.  Good  health,  optimism,  and  cheer- 
fulness tend  to  associate  closely,  and  the  relation  of  all  of 
these  to  selling  we  have  already  seen.  There  is  no  calling  m 
which  the  factor  of  good  health  and  the  external  evidences 


RETAIL  SALESPEOPLE  AND  THEIR  WORK 


81 


of  it,  such  as  good  posture,  lively  step,  bright  eye,  and  clear 
skin  count  for  so  much.  One  in  this  field  of  work  who  does 
not  possess  these  qualities  is  handicapped  from  the  start. 

Personal  Hygiene.— The  salesperson  should  give  special 
attention  to  the  care  of  the  feet,  correct  shoe  fitting,  and  the 
avoidance  of  shoes  that  are  too  tight,  too  short,  or  that  have  too 
high  heels.  They  are  on  their  feet  so  much  of  the  time  that  lack 
of  attention  to  such  details  as  these  is  likely  to  cause  a  great 
deal  of  trouble.  The  use  of  rubber  heels  and  a  moment's 
rest  by  sitting  down  now  and  then  are  suggested  as  helpful  ex- 
pedients. Cork  mats  back  of  the  counters,  or  other  paddings 
for  the  floor,  have  been  provided  in  some  retail  stores  to  re- 
duce the  strain  and  fatigue  on  salespeople's  feet.  Many  stores 
provide  the  services  of  a  skilled  chiropodist  to  care  for  the 
feet  of  the  salespeople. 

The  Store  Physician.— The  physician,  or  at  least  a  nurse, 
has  come  to  be  a  regular  employee  of  most  of  the  larger 
stores  of  the  country,  and  the  chief  duties  of  these  are  to 
prevent  employees  from  becoming  ill,  to  watch  for  signs  of 
physical  breakdown,  and  to  provide  means  of  prevention. 
Dentists'  services  are  offered  in  some  cases,  and  suggested  in 
many  other  stores.  The  importance  of  health  on  selling  has 
therefore  not  only  been  recognized,  but  means  have  been  taken 
to  insure  that  it  shall  be  secured. 

Bibliography 

Atkinson,  W.  W.  The  Psychology  of  Salesmanship.  E.  Towne, 
Holyoke,  Mass.     1913. 

Beaching,  C.  L.     Grocery  and  Business,  Chap.  X. 

Beynon,  R.  Drapery  and  Drapers'  Accounts.  Isaac  Pitman  and 
Sons,  New  York.     1909. 

Corbion,  W.  A.  Principles  of  Salesmanship,  Deportment  and  Sys- 
tem.    Jacobs,    Philadelphia.     1907. 


82 


ECONOMICS   OF  RETAILING 


Educational     Training     Course.     Retail     Shoe     Salesman's     Guide. 

1913- 
Farrington,  F.,  The  Clerks  Book.     Merchant's  Helps  Publishing  Co., 
Delhi,  N.  Y.,  1907. 

Fisk,  J.W.       Retail  Selling.     Harper's,  New  York.     1916. 

Fowler,    N.    C.     Practical    Salesmanship.     Little,    Brown    and    Co., 

Boston.     1911. 
Goddard,  F.  B.     The  Art  of  Selling.     1889. 
Higinbotham,  H.  N.     The  Making  of  a  Merchant.     Forbes  and  Co., 

Chicago.     1906. 
Hirshler,   D.     The   Art   of   Retail    Selling.     Institute   of   Mercantile 

Training,   New  York.     1909. 
Hoover,  S.  R.     The  Science  and  Art  of  Salesmanship.     Macmillan 

Co.,  New  York,     1916. 
Knox,  J.  S.     Salesmanship  and  Business  Efficiency.     Knox  School  of 

Salesmanship  and  Business  Efficiency,  Cleveland,  Ohio.     1917. 
Maxwell,  Wm.     Salesmanship.     Houghton  Mifflin  Co.,  Boston.    1914. 

Training  of  a  Salesman.     Lippincott,  Philadelphia.     1919. 
Norton,  H.  R.     Retail  Selling.     Ginn  and  Co.,  Boston.     1919. 

Nystrom,  P.  H.  Retail  Selling  and  Store  Management.  D.  Apple- 
ton  and  Co.,  New  York.     1914. 

Opdycke,  J.  B.  Advertising  and  Selling  Practice.  Shaw  Education 
Ser.,  Chicago.     1918. 

Whitehead,  H.  Principles  of  Salesmanship.  Ronald  Press  Co.,  New 
York.     1 9 17. 


CHAPTER  VII 

STANDARDS  OF  RETAIL  SALES  SERVICE 

Service  Manuals  and  Rule  Books.— Most  of  the  large 
stores,  including  the  chain  store  systems,  have  developed 
standards  of  practice  to  a  high  degree,  beginning  with  general 
rules  or  instructions  and  passing  even  to  details  of  direction 
on  just  how  store  operations  shall  be  performed.  In  many 
stores  and  systems  these  standards  of  practice  and  rules  have 
been  reduced  to  writing  and  printed  forms,  known  as  service 
manuals  or  ''rule  books."  Following  is  a  typical  manual  such 
as  is  given  to  salespeople  and  other  employees. 

Employees'  Service  Manual 


Advice  to  Beginners.— Inform  yourself  as  quickly  as  possible  con- 
cerning the  stocks  of  goods  you  are  supposed  to  sell,  their  names, 
where  they  are  kept,  their  qualities,  sizes,  pieces,  what  they  are  used 

for,  etc. 

Do  not  hesitate  to  ask  for  information  whenever  you  need  it. 

You  will  be  corrected  if  you  are  in  error.  Accept  these  correc- 
tions in  good  spirit  and  with  the  resolve  to  profit  thereby. 

Learn  the  working  rules  of  the  house,  such  as : 

Hours  for  business. 

Use  of  time  clocks. 

What  to  do  in  case  of  unavoidable  absence. 

Leaving  your  department. 

When  you  may  make  personal  purchases. 

Learn  to  make  out  the  necessary  sales  forms  on  checks  for  all 
possible  conditions  of  selling,  such  as  the  following: 

83 


84 


ECONOMICS   OF   RETAILING 


I. 

Cash  sale  taken 

10. 

2. 

Cash  sale  delivered 

II. 

3- 

Charge  taken 

12 

4- 

Charge  delivered 

13. 

5. 

Charge  to  one  address, 

14- 

sent  to  another 

15. 

6. 

C.  0.  D. 

16. 

7- 

Even  exchange 

17. 

8. 

Uneven  exchange 

18. 

9- 

"Will  call"  sale 

Discount  sale 
Credit  to  cover 
Special  delivery 
Employee's  purchases 
Part  cash,  part  paid 
Inclosed  packages 
Transfers 
Future  delivery 
Memorandum  charge 


Write  plainly ;  your  sales  checks  have  to  be  read  by  many  others. 
If  your  v^riting  is  not  easily  legible  mistakes  are  certain  to  occur. 

Study  Your  Merchandise. — Learn  its  names,  its  history,  and  where 
it  comes  from. 

Find  out  what  it  is  made  of  and  what  its  qualities  are. 

Learn  all  about  its  uses. 

The  customer  is  entitled  to  know  what  she  is  buying  and  you 
must  be  able  to  tell  her. 

Study  Your  Stock. — Be  sure  that  you  know  in  detail  what  you 
have  and  where  it  is  so  that  you  can  get  it  promptly.  Watch  your 
stock  so  as  to  prevent  running  out.  Keep  close  track  of  calls  for 
goods  not  kept  so  that  they  may  be  ordered  if  calls  are  numerous. 

Learn  which  are  the  profit-making  goods  and  sell  them  whenever 
vou  can. 

Prevent  accumulations  of  dead  stock ;  when  possible  sell  the  oldest 
article  first.     Keep  all  of  the  stock  on  the  move. 

Keep  your  stock  in  good  condition  and  in  good  order.  Go  over  it 
whenever  possible,  putting  it  in  first  class  order.  Use  your  spare 
time  in  looking  after  your  stock. 

Good  Business  Manners  Are  Required. — Employees  are  forbidden 
to  use  tobacco  and  liquor  in  all  forms  during  working  hours.  Pro- 
fanity, whistling,  loud  calling,  talking  across  aisles,  congregating, 
gossiping,  entertaining  visitors  during  business  hours,  and  so  on 
are  all  forbidden.  They  interfere  with  dignified,  courteous  service 
and  cannot  be  permitted.  Employees  are  expectd  to  be  courteous 
to  all ;  not  only  customers  but  to  fellow  employees  as  well.     A  helpful 


STANDARDS  OF  RETAIL  SALES  SERVICE 


85 


spirit   of   co-operation   is   necessary   to  the   highest   store   efficiency. 

Salespeople  are  expected  to  dress  conservatively  and  in  good, 
simple  taste. 

Customers  like  to  deal  with  salespeople  who  are  neat  and  clean 
in  person.  Take  good  care  of  your  hair,  skin  and  nails,  and  keep 
your  clothing  clean. 

In  talking  to  customers,  remember  that  you  represent  the  store. 
You  are  the  store.  But  use  the  word  "we"  rather  than  T,"  and  say 
"you"  more  frequently  than  "we." 

In  speaking  of  men's  goods,  refer  to  them  as  "men's  goods,"  not 
as  "gent's  goods." 

Always  use  the  word  "madam"  instead  of  "lady,"  in  addressing 
women  who  visit  the  store  when  you  do  not  know  their  names.  Use 
their  names  if  you  know  them. 

Saleswomen,  in  waiting  upon  other  women,  should  never  use  the 
expression,  "My  dear,"  or  anything  similar  to  it. 

The  word  "flat"  as  applied  to  an  apartment  house  is  not  pleasing. 
Use  the  word  "apartment"  instead. 

Instead  of  saying  "charge  or  cash?"  when  closing  the  sale,  it  is 
preferable  to  say,  "Have  you  an  account?"  assuming  that  otherwise 
the  cash  will  be  presented. 

Employees  are  expected  to  maintain  a  high  standard  of  conduct 
outside  of  business  as  well  as  in.  To  succeed  in  the  long  run  you 
must,  of  your  own  accord,  choose  respectable,  moral  associates  and 
keep  good  habits. 


The  Essentials  of  Retail  Salesmanship. — Your  position  and  the 
very  existence  of  the  store  both  depend  upon  customers.  The  real 
boss  in  every  store  is  the  customer. 

Come  forward  and  meet  your  customers  promptly.  If  engaged 
in  work  with  other  customers,  show  by  recognition  that  you  know 
the  prospective  customer  is  waiting.  Endeavor  to  keep  her  until  you 
are  at  liberty  to  wait  on  her. 

Show  a  real,  personal  interest  in,  and  friendliness  to  your  cus- 
tomer.    Look  the  customer  straight  in  the  eye  in  a  kindly  way. 

Be  on  the  alert  and  don't  make  it  necessary  for  a  customer  to  ask 
you  to  wait  on  her.  Say  politely,  "Madam,  may  I  wait  on  you?" 
Wait  expectantly.  After  you  have  learned  the  customer's  wishes, 
move  promptly  to  carry  them  out. 


86 


ECONOMICS   OF   RETAILING 


Get  the  customer's  attention  to  the  goods  in  some  way,  by  word 

or  action,  but  get  it. 

Then  demonstrate  the  goods.  Start  out  by  giving  the  sales  pomt 
that  you  think  will  be  strongest  with  the  customer.  If  the  customer 
seems  interested,  go  ahead.  If  the  customer  is  not  interested,  try 
some  new  point  or  another  article  of  merchandise.  Be  smcere  m 
manner  as  well  as  in  mind.  Be  positive  but  not  domineering.  Be 
forceful  but  tactful.  Show  how  the  goods  are  used  and  how  they 
will  look  when  in  use.  Handle  your  goods  appreciatively.  That 
suggests  appreciation  to  your  customer. 

Show  enough  goods  to  demonstrate  that  you  are  willing  to 
work  hard  to  please,  but  don't  confuse  the  customer  by  too  great 
variety.  Start  by  showing  considerable  variety,  but  next  eliminate 
those  articles  not  likely  to  interest.  Get  the  goods  into  the  hands 
of  the  customer  if  possible. 

Don't  overtalk.  Get  the  customer's  viewpoint.  Be  a  good 
listener.     Watch  the  customer's  expressions.     Be  guided  thereby. 

Don't  misrepresent. 

Don't  sell  an  article  that  you  are  not  sure  will  give  the  cus- 
tomer full  satisfaction.     Study  the  expression  of  your  customer. 

Close  the  sale  by  repeating  the  points  in  which  the  customer 
seemed  most  pleased.  Emphasize  the  advantages  the  customer  will 
enjoy  from  owning  the  article.  Make  it  easy  to  say  "yes"  and 
difficult  to  say  "no."  Be  sure  that  the  customer  is  satisfied  before 
leaving.     Win  the  customer  for  the  store. 

Thank  every  customer. 

Be  prepared  to  answer  objections  by  knowing  in  advance  what 
they  are  likely  to  be.  Answer  by  appearing  to  agree.  Never  argue. 
Don't  dispute.     Remember  "the  customer  is  always  right." 

Common  Objections  Heard  in  Retail  Stores.— Study  these  objec- 
tions.    Learn  how  to  meet  them. 

*T  haven't  time  to  buy  today." 

"I  wish  to  look  elsewhere." 

"I  can  get  it  cheaper  at  Brown's." 

"I  will  ask  a  friend  to  come  in  and  see  it. 

'Tt  is  too  high   in  price." 

'Tt  is  more  than  I  expected  to  pay." 

*T   have   not   enough   money   with   me   today. 

*T'll  wait  until  the  goods  are  marked  down." 


STANDARDS  OF  RETAIL  SALES  SERVICE 


87 


'T  want  my  husband  to  see  it." 

*T   won't  decide  today." 

*T  am  too  tired  to  know  what  I  want  today." 

"It  is  not  the  same  as  I  want." 

"I  must  think  it  over." 

"It  doesn't  seem  to  fit  well." 

"The  new  styles  seem  so  queer." 

"I  can't  see  with  these  glasses." 

"I  will  buy  at  Brown's.     I  have  a  charge  account  there.' 

"I  want  something  nicer." 

"I  don't  want  to  pay  for  alterations." 

Use  of  the  Telephone.— It  is  just  as  important  to  make  a  good 
impression  over  the  telephone  as  it  is  face  to  face  with  the  customer, 
more  important  if  anything. 

Never  tell  the  customer  over  the  wire  that  you  are  busy  or  that 
anyone  else  in  the  store  is  too  busy  to  attend.  Telephone  calls 
should  be  answered  promptly.  The  one  who  answers  should  do  so 
with  the  most  pleasant  voice  possible.     "The  voice  with  the  smile 

wins."  .    ,  r    ^1         , 

See   that   every   detail   of    service    is    carried   out   perfectly    on 

telephone  orders.     In  no  other  way  can  the  customer  be  saved  for 
the  store. 

Sales  by  Suggestion.— Every  customer  should  leave  the  store 
highly  pleased.  Better  not  a  sale  at  all  rather  than  a  displeased  cus- 
tomer Additional  sales  can  frequently  be  made,  however,  by  slight 
suggestions  that  are  fully  agreeable  to  the  customer.  Study  how  to 
suggest  goods  pleasantly.    A  few  illustrations  are  listed  below : 

When  a  customer  buys  a  tooth  brush  call  attention  to  your 

line  of  dentifrices. 
Mention  neckties  to  the  shirt   customer. 
The  customer  for  shoes  may  also  be  a  good  prospect  for  polish, 

shoe  trees,  and  even  hosiery. 
When   it  is  raining  or  threatening  to  rain  suggest  umbrellas, 
rubbers,  etc.     A  customer  for  brooms,  dust  cloths,  or  cleaning 
utensils'  may  be  interested  in  vermin  exterminators,  scouring 

soap,  etc. 
If  you  know  what  goods  a  customer  prefers,  mention  them. 

Other   lines    for   suggestions    are    as    follows: 


88 


ECONOMICS   OF   RETAILING 


New  goods  just  received. 
Goods  advertised  for  the  day. 
Special  bargains. 

Goods  that  will  fit  the  customer's  needs  for  hot  weather,  for 
outings,  for  picnics,  for  work,  etc. 

So  far  as  possible  merchandise  should  be  displayed  in  a  way 
to  lead  the  customer  from  one  want  to  another.  Display  related 
things  together. 

General  Suggestions  to  Salespeople. — Discover  and  remember 
each  customer's  individual  taste  and  you  will  be  able  to  give  her 
quicker  and  better  service.  Always  introduce  and  display  your  new 
goods ;  this  will  please  the  customer  and  help  your  sales. 

By  being  polite,  prompt,  and  cheerful  you  grow — and  no  one  can 
keep  you  from  growing  but  yourself. 

Serve  each  customer  so  promptly,  pleasantly,  and  politely  that 
she  will  come  back  again  and  recommend  the  store  to  her  friends. 

In  every  transaction  with  a  customer,  you  represent  the  firm, 
and  her  opinion  of  the  store  and  its  service  is  based  largely  on  the 
good  or  bad  impression  you  make. 

The  best  helps  to  advancement  are  to  be  interested  In  your 
work  and  to  remember  always  that  your  employer's  best  interests 
are  your  own. 

Study  the  store's  advertising.  The  advertising  is  the  voice  of  the 
store.  It  not  only  tells  what  goods  are  on  sale  and  helps  to  sell,  but 
it  also  tells  the  store's  policies. 

Variation  in  Manual  Detail. — While  the  foregoing  manual 
is  typical  to  a  large  extent,  individual  manuals  differ  from  it, 
of  course,  in  various  details.  In  some  stores,  for  instance,  ab- 
solute uniformity  of  dress  is  required,  while  in  others  only  a 
slight  variation  is  allowed.  The  following  is  quoted  from  the 
manual  of  a  well-known  department  store: 

''Be  cleanly  and  neat  in  appearance,  avoiding  extravagance 
and  display.  All  young  women  in  the  sales  departments  will 
please  dress  in  black,  exception  being  made  in  the  use  of 
white  or  colored  neck-bands,  if  desired,  which  we  will  ask 
always  be  held  at  the  point  of  good  taste.     During  the  period 


STANDARDS  OF  RETAIL  SALES  SERVICE 


89 


when  shirtwaists  are  worn  (from  April  i  until  October  15) 
we  shall  not  object  to  employees  wearing  neat  shirtwaists 
(white  preferred)." 

The  Manual  for  Managers.— The  manuals  sent  out  to  the 
managers  of  chain  stores  contain  information  and  instructions 
more  general  in  nature.  The  following  suggestions  are  typi- 
cal of  those  sent  out  to  such  managers  in  store  manuals. 

Manual  for  Store  Managers 

Keep  the  Exterior  of  the  Store  Attractive.— The  sidewalk  should 
be  kept  clean,  free  from  ice,  snow,  boxes,  and  so  on.  It  should  be 
level  and  of  sufficient  width  to  permit  customer's  to  pass  in  and  out 

with  ease.  t      u     ij 

The  front  of  the  store  should  be  kept  fresh  looking.     It  should 

be  painted  frequently.     This  outlay  is  more  of  an  investment  than 

an  expense. 

The  entrance  should  be  easy  of  access,  the  doors  should  swmg 
easily.  There  should  be  no  projections  to  catch  the  garments  of  cus- 
tomers. The  hinges  should  be  noiseless.  If  a  door-man  is  employed, 
he  should  be  pleasant  in  appearance,  alert,  ready  to  serve,  courteous, 
and  reliable.  He  must  not  only  be  these  things;  he  must  look  them 
as  well. 

Proper  Ventilation  and  Heating.— The  temperature  of  the  store 
should  be  kept  about  68°  to  70°  during  the  winter  and  with  a  relative 
humidity  of  50  to  75  per  cent.  This  temperature  and  humidity  will 
make  the  store  an  ideal  place  in  which  to  sell  goods  both  for  the 
salespeople  and  for  the  customers.  The  air  should  be  changed  by 
ventilation  frequently  enough  to  provide  every  person  in  the 
store  with  at  least  50  cubic  feet  per  minute. 

Keep  the  Store  Well  Lighted,  But  Not  Over-lighted.— Light  the 
outside,  windows,  and  interiors  in  such  a  way  as  to  give  an  agreeable 
impression  to  the  eye  as  well  as  to  help  show  merchandise.  The 
light  should  be  soft  rather  than  glaring. 

Keep  the  Store  Clean. — Sweep  the  floors  and  dust  the  counters 
and   shelves   every   morning. 


f 


90 


ECONOMICS    OF   RETAILING 


Go  over  paint  carefully,  removing  all  dirt.  Do  not  use  washing 
powders,  ammonia,  or  soap  on  painted  woodwork.  These  lessen  the 
life  of  the  paint. 

Go  over  the  counters  every  Saturday  night  with  oil  and  rub 
well  with  cheese  cloth. 

Polish  all  metal  utensils,  scales,  scoops,  cash  registers,  coffee 
mills,  and  so  on  once  a  week. 

Clean  the  refrigerators  thoroughly,  both  inside  and  out,  the 
ice  chambers  as  well   as  the   food  chambers,   once  a  week. 

Clean  the  electric  light  bowls  once  a  week. 

Oil  the  floors  once  a  week,  preferably  on  Saturday  nights. 

Keep  the  windows  clean.  Your  windows  are  the  eyes  of  your 
store.  Clean  the  inside  of  a  window  with  clean  water,  using  a 
sponge,  a  chamois,  and  a  clean  well-worn  cloth  (not  cheese  cloth). 
Wash  the  outside  of  window  with  a  window  brush  and  rinse  off 
with  clean  water.     Wash  immediately  after  every  rain  or  snowstorm. 

Use  clean  price  tags  on  your  goods,  clean  window  and  store 
signs.     Keep  the  merchandise  clean  and  fresh  looking. 

Keep  flies  and  other  insects  out  of  store  at  any  cost. 

Keep  the  store  free  from  mice  and  rats.  Use  traps  and  poisons. 
Do  not  keep  a  cat  in  the  store. 


CHAPTER  VIII 

SECURING  GOOD  SALESPEOPLE 
Retail  Store  Labor  Turnover 

The  Problem  of  Labor  Turnover.— The  average  store  suf-^ 
fers  from  a  very  high  turnover  of  its  employees.     In  large 
stores  it  is  not  uncommon  to  employ  twice  as  many  people 
during  the  year  as  are  employed  at  any  one  time.     There  are 
instances  of  hiring  five  times  as  many  people  in  a  year  as  were  ^ 
employed  even  during  the  busiest  season.     On  the  other  hand, 
there  are  large  stores  which  do  not  have  to  employ  more  than 
a  fifth  as  many  in  a  year  as  the  total  average  number  work- 
ing     This  shift  in  personnel  or  "labor  turnover/    as   it  is 
called,  is  one  of  the  biggest  problems  in  retail  store  adminis- 
tration. 

Reasons  for  High  Rate  of  Turnover.— The  reasons  for 
this  high  rate  of  turnover  of  employees  in  retail  stores  are 
numerous.  In  the  first  place  the^demand  for  employees  fluc- 
tuates^ greatly  in  most  stores.  It  is  usually  lowest  in  August 
and  heaviest  between  Thanksgiving  and  Christmas.  The  holi- 
day force  averages  at  least  a  quarter  more  than  the  summer 
force  in  most  department  stores.  In  a  great  many  stores  it 
amounts  to  one-half  more.  This  is  the  chief  cause  of  the  high 

labor  turnover.  , 

Another  reason  for  a  high  labor  turnover  is  the  classes  ot 
people  employed.  ^  A  large  number  of  new  employees  are  young, 
inexperienced,  without  settled  life  purposes  and  without  a 
sense  of  profession  or  craftsmanship.     The  result  is  what  one 

91 


1 


Q^  ECONOMICS   OF   RETAILING 

would  expect.  Those  newly  hired  furnish  the  highest  ratios 
of  those  who  leave.  The  reasons  given  by  the  employees 
themselves  for  leaving  include  such  statements  as  follows: 

"Don't  like  the  work." 
"Disliked  the  buyer." 
"Wanted  a  change." 
"Work  was  too  hard." 
"No  chance  for  promotion." 
"Was  ill." 

"Going  to  get  married." 
"Needed  at  home." 
"Don't  have  to  work." 
"Change  of  residence." 

In  the  numerous  cases  of  employees  who  leave  because 
they  are  discharged  the  reasons  are  such  as  follows : 

"Careless." 

"Made  too  many  errors." 

"Lazy." 

"Irresponsible." 
"Unreliable." 
"Insubordinate." 
"Couldn't  learn." 
"Theft." 

"Constantly  tardy." 
"Trouble  maker." 

Permanent  Employees  Numerous.— On  the  other  hand, 
it  must  not  be  inferred  that  retail  stores  do  not  successfully 
hold  a  large  part  of  their  employees  for  considerable  lengths 
of  time.  Many  of  the  older  stores  justly  pride  themselves 
on  the  number  of  employees  who  have  been  with  them  for 

twenty  years  or  more. 

In  New  York,  according  to  the  New  York  State  Factory 
Investigating  Commission,  1915,  Vol.  II,  it  was  found  that 
the  average  age  of  salesmen  in  stores  is  31  years  and  of  sales- 


SECURING  GOOD  SALESPEOPLE 


93 


women,  22  years.  Men  average  seven  years  in  the  trade 
and  women  four  years.  But  about  an  eighth  of  the  entire 
number  had  been  in  retailing  for  over  ten  years.  This  prob- 
ably compares  very  favorably  with  any  other  vocation. 

Department  of  Employees 

1 

Cost  of  "Hiring  and  Firing."— The  high  rate  of  labor 
turnover  prevailing  in  retail  stores  is  forcing  owners  and 
managers  to  give  systematic  attention  to  the  problem  of  em- 
ployment in  just  the  same  manner  as  this  problem  is  being 
faced  in  other  lines  of  business.  The  cost  of  hiring  new  help, 
of  training,  and  of  the  losses  due  to  the  inefficiency  of  new 
help,  keep  the  net  profits  of  any  store  down  tremendously. 
Counting  all  costs  such  as  hiring,  time  of  training,  and  losses 
in  sales  and  good-will  due  to  inexperience,  it  may  be  safely 
assumed  that  the  total  cost  is  not  less  than  $25  per  new  em- 
ployee, and  it  is  probably  more. 

The  Employment  Department.— So  there  is  being  de- 
veloped a  science  of  employment  to  meet  the  problem  of  high 
costs  due  to  labor  turnover.  Most  stores  of  large  size  now 
have  regular  employment  departments.  A  few  have  estab- 
lished departments  of  larger  responsibility,  employment  being 
a  detail.  The  trend  is  in  the  direction  of  a  well-developed  de- 
partment dealing  with  employees  in  all  possible  ways,  just  as 
there  is  a  merchandise  department,  a  delivery  department,  an 
accounting  department,  a  credit  department,  an  advertising 
department,  and  so  on.    '/ 

The  Department  of  Employees. — A  department  of  em- 
ployees is  a  logical  thing.  Its  duties,  now  generally  widely 
distributed,  need  centralization,  and,  more  often,  development 
or  expansion. 


I. 


g^  ECONOMICS   OF  RETAILING 

The  head  of  the  department  of  employees  might  well  be 
called  the  ''superintendent  of  employees."  His  functions 
are  so  important  that  his  position  should  be  ranked  with  that 
of  the  merchandising  manager.  His  qualifications  should  in- 
clude not  only  knowledge  of  the  business  and  experience  with 
people,  but  also  a  pre-eminent  fairness,  open  mindedness,  and 
careful  judgment.  There  is  no  position  in  any  store  of 
greater  responsibility. 

The  department  of  employees  under  the  plan  that  is  fol- 
lowed in  a  few  of  the  most  progressive  and  most  successful 
stores,  and  which  seems  to  be  on  the  way  for  adoption  in  all 
large  stores,  carries  the  following  duties : 

It  is  responsible  for  the  selection  of  all  employees, 
and  therefore  includes  all  the  functions  of  an  em- 
ployment department. 

It  keeps  close  track  of  all  possible  sources  of  supply 
of  all  kinds  of  labor  needed  in  the  store. 

It  is  in  charge  of  all  interior  store  surveys  aiming 
at  analysis  of  the  various  positions.  In  other 
lines  of  work  this  type  of  survey  is  called  "job 

analysis." 
It  studies  employees  in  the  same  way  as  jobs  are 
studied,  in  order  to  get  the  "right  man  into  the 

right  place." 

All  training  of  employees  is  under  the  direction  of 
this  department ;  thus  the  educational  department, 
if  there  is  one,  would  be  a  part  of  the  department 
of  employees. 

It  is  responsible  for  the  progress  in  efficiency  of  the 
employees.  Therefore  it  should  have  the  means 
of  following  employees  into  their  respective  sec- 
tions, helping  them  to  improve  and  testing  their 
achievements. 


2. 


3- 


SECURING  GOOD  SALESPEOPLE 


95 


7- 

8. 
9- 

lO. 


It  is  the  clearing  house  for  the  labor  of  the  store. 
Transfers,  promotions,  as  well  as  discharges 
should  be  made  through  it. 

It  is  the  department  through  which  plans  of  remuner- 
ation should  be  carried  out. 

All  welfare  work  done  by  the  company  is  under 
the  direction  of  this  department. 

Finally,  this  department  is  the  place  for  settling  all 
controversies,  misunderstandings,  and  grievances 
of  employees. 

Job  Analysis  in  the  Retail  Store 

Job  Analysis.— The  first  step  to  scientific  employment  is 
a  careful  analysis  of  all  of  the  positions  in  the  store.  A  few 
of  the  most  progressive  stores  in  the  country  have  already 
taken  this  step ;  others  are  considering  it.  Such  analyses  show 
what  each  job  is.  what  work  is  to  be  done,  how  it  is  to  be 
done,  and  the  qualifications  needed  to  be  able  to  do  it  in  a 
satisfactory  manner.  An  example  of  a  position  analyzed  in 
the  manner  suggested  is  as  follows : 


Analysis  of  Position 


Department   (Handkerchief) 


Position   (Saleswoman) 


I.     Duties  of  Position  : 

1.  To  keep  stock  in  good  order. 

To  keep  stock  attractive  looking. 

To  work  out  department  displays  under  direction  of  dis- 
play manager. 

To  replenish  from  reserve  stock. 

To  report  when  stock  is  falling  low  so  that  stock  may  be 
ordered  in  time. 

2.  To  make  sales  to  customers. 

Saleswoman  must  have  a  knowledge  of  the  goods  and  of 
retail  salesmanship. 


96 


ECONOMICS   OF   RETAILING 


II. 


3- 

To  co-operate  with  other  departments. 

4- 

To    make    out    sales    sHps    correctly. 

General  Qualities  Desired  of  Person  Holding  Position. 

I. 

Willingness  to  work 

2. 

Good  sense 

3- 

Honesty 

4- 

Good  healthy  physique 

(a)     Medium  height 

(b)     Active,  not  necessarily  strong 

(c)     Sound   feet 

(d)     Good  eyesight  and  hearing 

(e)     Healthy  appearance 

5- 

Good,    pleasing   voice   and   personality 

6. 

Punctuality 

7- 

Obedience 

8. 

Alertness 

9- 

Patience 

10. 

Cheerfulness 

II. 

Ambition 

12. 

Tact 

13- 

Courtesy 

14. 

Taste 

15- 

Age:   Preferably  between   18  and  25,  not  over  40 

Value  of  Job  Analyses. — Such  analyses  are  invaluable  to 
the  manager  of  the  employment  department.  With  these  before 
him  he  can  wisely  select  from  the  candidate  for  positions  those 
who  qualify.  The  analyses  may  also  serve  effectually  in 
educating  new  employees,  as  guides  or  courses  of  study.  If 
an  employee  is  not  improving  in  a  satisfactory  way  she  can  be 
shown  point  by  point  in  just  what  ways  she  is  failing.  The 
analysis  is  an  impersonal  standard. 

Methods  of  Making  Analyses. — Job  analyses  can  be  readily 
obtained  at  a  minimum  expense  of  time  by  requesting  every 
employee  to  make  out  a  list  of  his  or  her  own  duties.  The^e 
statements,   more   or  less  perfect,   will   define  the   duties  of 


SECURING  GOOD  SALESPEOPLE 


97 


each  existing  position.  These  may  then  be  checked  by  de- 
partment heads,  corrected  where  necessary,  and  turned  over 
to  the  employment  manager  as  data. for  his  records. 

This  method  of  obtaining  the  analysis  of  the  various  posi- 
tions also  has  a  good  effect  on  the  employee  himself.  It  is  not 
only  a  time-saving  plan  for  performing  this  work,  but  is  ex- 
tremely valuable  in  itself.  In  the  first  place,  .the  employee 
when  called  upon  to  enumerate  the  duties  of  his  position  is 
forced  to  analyze  his  job  fully  in  his  own  mind.  In  many 
cases  this  results  in  a  clearer  conception  in  the  minds  of  the 
employees  as  to  what  their  work  really  is,  and  this  tends  to 
increase  their  ambition.  But  there  is  another  value  and 
that  lies  in  the  opportunity  afforded  to  correct  misconceptions 
of  duties  as  understood  by  the  employees.  Such  errors  may 
thus  be  caught  by  the  department  heads  and  rectified. 

Job  analyses  are  valuable  for  the  management.  They  are 
to  labor  what  the  inventory  is  to  merchandise.  They  are  the 
listings  of  the  work  to  be  done. 

Sources  of  Applicants  for  Positions 


Filling  Vacancies. — Next,  after  having  the  analyses  of 
positions  the  employment  manager  may  proceed  to  filling 
vacancies  as  they  occur  and  to  filling  newly  created  positions. 
In  this  connection  a  knowledge  of  possible  sources  of  supply 
of  applicants  is  highly  valuable.  In  general  these  are  as 
follows : 

1.  Applicants  who  come  to  the  store  on  their  own  account 
looking  for  positions. 

2.  Persons  recommended  by  present  employees.  As  a 
rule  employees  take  a  great  deal  of  interest,  if  given  the 
chance,  in  finding  good  employees  for  the  concern.  Some 
stores  pay  a  bonus  of  a  dollar  or  in  some  cases  five  dollars  for 


98 


ECONOMICS   OF   RETAILING 


every  new  employee  thus  obtained.  iVt  the  same  time  this 
method  of  getting  new  help  is  not  without  disadvantages.  If 
a  large  number  of  employees  are  taken  into  the  concern  in 
this  way,  cliques  centering  around  those  who  made  the  recom- 
mendations easily  form,  and  these  are  in  some  cases  difficult 
to  manage.  Cases  have  been  known  where  groups  left  the 
store  when  the  person  who  recommended  them  was  discharged. 

3.  Advertising  in  local  papers.  This  is  usually  an  effec- 
tive way  of  getting  help. 

4.  Advertising  placed  so  that  young  people  in  the  vil- 
lages and  country  may  see  it.  Such  advertising  usually  brings 
good  results  and  a  desirable  class  of  employees.  Large  city 
stores  can  frequently  get  many  desirable  employees  by  going 
to  small  towns  and  to  the  country. 

5.  Organizations  such  as  the  Y.  M.  C.  A.,  lodges, 
churches,  and  young  people's  organizations.  These  may  be 
very  helpful  sources  of  getting  desirable  applicants. 

6.  Students  about  to  quit  public,  private,  and  business 
schools  who  desire  to  go  into  store  work.  Information  con- 
cerning such  persons  may  be  obtained  through  the  help  of 
the  teachers  and  principals  of  the  schools. 

7.  Salespeople  who  have  left  the  store  but  who  may  be 

willing  to  come  back. 

8.  Saleswomen  who  have  left  the  store  to  get  married 
but  who  for  one  reason  or  another  may  be  willing  to  come 
back  for  work,  particularly  if  offered  the  opportunity  to  work 
at  convenient  hours.  A  few  concerns  are  able  to  keep  highly 
desirable  saleswomen  on  their  staffs  for  the  busy  hours  ot 

each  day  in  this  way. 

9  Employment  agencies,  particularly  the  public  employ- 
ment agencies  lately  established.  Such  agencies  are  certain 
to  become  important  sources. 

10      Advertising   in   trade   papers     for    high    grade   em- 
ployees.    The  fact  that  a  retail  store  man  or  woman  reads 


SECURING  GOOD  SALESPEOPLE 


99 


trade  papers  sufficiently  to  note  the  "want  ads"  is  a  recom- 
mendation of  some  value. 

Good- Will  as  an  Employment  Factor.— A  store  is  likely  to 
experience  ease  or  difficulty  in  getting  new  employees  in  ac- 
cordance with  its  good-will  in  the  community.  Applicants 
will  sometimes  take  positions  in  certain  retail  stores  even  at 
lower  rates  than  those  which  may  be  obtained  elsewhere, 
simply  because  the  employees  already  there  are  so  well  satisfied. 
There  are  a  few  stores  which  at  all  times  are  able  to  com- 
mand the  services  of  the  best  classes  of  young  people  in  their 
towns.     The  store's  good-will  is  in  such  cases  equivalent  to 

cash  in  hand. 

As  this  is  so  true,  every  store  should  aim  at  developing  its 
good-will,  not  only  to  increase  its  patronage,  but  also  to  help 
get  the  right  sort  of  employees. 

Interview  and  Tests 

Ability  Judged  by  Interview.— The  interview  is  to  most 
employment  departments  the  chief  means  of  getting  informa- 
tion and  judging  the  abilities  of  the  applicant.  A  large  ele- 
ment of  chance  enters  into  the  conditions  that  grow  out  of  an 
interview.  In  many  cases  it  may  be  very  unfair  to  the  appli- 
cant, as  the  impression  given  in  an  interview  may  be  far  from 

the  right  impression. 

The  remedy  is  obviously  to  supplement  the  initial  interview 
by  other  sources  of  information,  and  if  possible  by  other 
interviews.  More  than  one  interview  may  be  impossible  in 
retail  store  practice  except  for  the  higher,  more  important 
positions.  The  calls  for  help  are  so  urgent  in  the  average 
store  and  the  number  of  people  who  must  be  seen  is  so  great 
that  judgment  as  to  the  applicant's  fitness  must,  in  most  cases, 
be  formed  quickly. 


lOO 


ECONOMICS   OF   RETAILING 


SECURING  GOOD  SALESPEOPLE 


lOI 


In  view  of  the  need  for  economy  of  time  in  hiring,  as  well 
as  the  need  for  better  results,  the  interview  must  be  made  as 
effective  as  possible.  It  must  be  to  the  employment  manager 
or  superintendent  of  employees,  \vhat  the  diagnosis  is  to  the 
physician.  Like  the  physician,  the  employment  manager 
needs  a  well-developed  order  of  procedure,  based  primarily 
upon  a  knowledge  of  what  is  needed  in  the  position  to  be 
filled,  and  coupled  with  the  necessary  technique  for  bringing 
out  the  required  information  about  the  applicant. 

For  example,  the  employment  manager  can  determine  the 
qualifications  desired  in  the  applicant,  and  in  a  general  way, 
those  not  desired.  Naturally  the  interview  room  is  arranged, 
noise  is  excluded,  and  the  employment  manager's  manner  is 
such  as  to  give  the  applicant  a  fair  chance.  The  applicant 
is  greeted  in  a  friendly  manner  to  help  relieve  the  possible  ner- 
vous tension  from  which  some  people  suffer  when  seeking  a 

position. 

The  questions  asked  are  intended  to  bring  the  interview 
to  the  point.  The  applicant  is  given  an  opportunity  to  sell 
his  services  fully.  Specifically,  the  applicant  is  drawn  out  to 
determine  his  ability  to  do  the  work  required. 

The  Mirage  of  Character  Analysis.— From  time  to  time 
employment  managers  and  executives  are  carried  away  by 
their  interest  in  so-called  methods  of  character  analysis.  If 
their  were  any  sure,  swift  short-cut  to  reading  character,  its 
discovery  would  be  a  wonderful  aid  to  employment  as  well 
as  to  all  other  walks  of  life,  but  in  spite  of  thousands  of  years 
of  study  and  theorizing,  no  such  method  has  yet  been  found. 
Hope  springs  eternal,  however,  in  the  breasts  of  many,  so 
there  has  been  wave  upon  wave  of  belief  in  various  "systems'* 
and  schemes  .such  as  astrology,  palmistry,  clairvoyance,  telep- 
athy, phrenology,  graphology,  and  physiognomy. 

The  intelligent  reader  will  at  once  cast  out  of  mind  most 


of  these  as  wholly  futile,  but  may  make  reservations  in  favor 
of  some  one  or  more  of  the  group.  Many  business  men  now 
believe  in  the  last  three— phrenology,  graphology,  and  physiog- 
nomy. 

Phrenology.— Phrenology  theories  were  exploded  long  ago 
in  the  acid  test  of  accurate  measurement  but  have  recently 
been  revived  in  well-advertised  methods  of  "character 
analysis"  and  apparently  the  errors  of  the  past  will  have  to  be 
tried  out  again  in  the  fires  of  costly  experience. 

Graphology.- Graphology,  reading  character  in  hand- 
writing, is  without  scientific  value  but  does  apparently  offer 
something  indicative  of  character  in  an  indirect  manner. 
Thought  tends  to  be  expressed.  Habits  of  thought  are 
formed.  Expression  likewise  becomes  habit.  SO  neatness  in 
thinking  is  likely  to  be  shown  in  neat  writing.  Forceful 
thinking  might  be  shown  in  strong,  jagged,  forceful  writing. 
But  it  is  all  very  indefinite.  The  most  valuable  point  that  the 
retail  store  employment  manager  can  gain  from  observing  the 
writing  of  applicants  is  whether  the  penmanship  is  legible  or 
not.  That  constitutes  sufficient  reason  for  getting  a  sample 
of  the  applicant's  handwriting. 

Physiognomy.— Physiognomy,  like  graphology,  may  tell 
something  of  the  inner  man  because  thoughts  tend  to  show  in 
the  expression  of  the  features.  Signs  of  nervousness  are  ob- 
vious. The  rate  of  thinking,  whether  rapid  or  slow,  can  be 
seen.  The  person  who  is  trying  to  keep  from  telling  some- 
thing may  have  shifty  eyes,  but  in  every  case  it  is  the  expres- 
sion that  the  interviewer  sees  and  interprets  and  not  the  length 
of  the  nose,  the  slant  of  the  forehead,  the  convexity  or  con- 
cavity of  face,  the  blondness  or  brunetteness  of  the  applicant. 
The  only  character  reading  of  which  we  have  any  assuredness 


102 


ECONOMICS  OF  RETAILING 


is  character  reading  from  expression — what  the  applicant  tells 
by  word  of  mouth,  by  actions,  by  blushes,  frowns,  inclination 
of  the  head,  twitching  of  the  smaller  muscles,  and  so  on.  This 
is  real  and  highly  important.  To  be  a  successful  reader  of 
men,  one  must  be  expert  in  reading  and  interpreting  expres- 
sion. The  most  skillful  character  readers  are  the  most  skilled 
readers  of  expression.  They  may  think  that  it  is  physiog- 
nomy, phrenology,  telepathy,  or  what  not,  but  subconsciously 
if  not  consciously  it  is  swift,  sure  noting  of  the  outward  signs 
of  the  applicant's  thoughts. 

Employment  Psychology. — More  recently  there  has  been 
given  a  great  deal  of  thought  to  the  application  of  psychology 
to  employment.  Psychology  is  really  a  science,  and  from  ef- 
forts made  in  this  direction  there  may  be  borne  fruit. 

Psychology  has  been  employed  scientifically  and  success- 
fully for  years  in  the  education  of  children.  The  recent  in- 
terest in  psychology  as  a  possible  help  to  employment  grows 
out  of  observation  of  the  remarkable  results  obtained  from 
testing  the  various  faculties  of  mind,  memory,  reasoning, 
imagination,  perception,  patience,  attention,  and  so  on. 

The  Work  of  Binet  and  Simon. — In  1908  there  was  pub- 
lished in  France  a  work  on  testing  the  general  intelligence  and 
determining  the  mental  age  of  children.  The  authors  were 
Binet  and  Simon.  Their  work  has  been  revised  and  greatly 
expanded.  Many  devices  have  been  added,  particularly  by 
American  professors  of  psychology. 

With  the  work  of  Binet  and  Simon  as  a  basis,  sets  of  tests 
intended  to  show  the  fitness  of  people  for  particular  jobs,  are 
being  developed.  Considerable  progress  has  already  been  made. 
Tests  have  been  worked  out  that  are  fairly  certain  in  selecting 
the  right  persons  for  steel  ball-bearing  inspectors,  telephone 
operators,    telegraph    operators,    stenographers    and    typists, 


SECURING  GOOD  SALESPEOPLE 


103 


motormen,  chauffeurs,  naval  officers,  singers,  engineers,  wait- 
resses, hand-sewers,  machine  stitchers,  army  and  navy  appli- 
cants, aviators  and  traveling  salesmen. 

The  tests  applied  to  these  classes  vary,  but  include  generally 
measurements  of  general  intelligence,  tenacity,  accuracy,  reac- 
tion time  (time  it  takes  for  the  mind  to  get  results  from  the 
muscles  of  the  body),  and  so  on. 

Psychological  Tests  for  Retail  Salespeople. — Unfortu- 
nately, no  satisfactory  tests  have  been  worked  out  as  yet  for 
retail  salespeople.  There  have  been  experiments,  but  nothing 
conclusive  has  been  given  to  the  public. 

There  would  be  distinct  drawbacks  to  psychological  tests 
for  retail  selling,  even  if  they  were  prepared,  as  it  takes  consid- 
erable time  to  carry  them  out,  and  they  are  usually  so  technical 
that  they  require  a  trained  psychologist  to  put  them  through. 
Progress  is  being  made,  however,  and  retail  store  managers 
as  well  as  employment  men  would  do  well  to  keep  their  eyes 
open  for  developments  in  this  line. 

Up  to  the  present  time  the  best  progress  in  employment  in 
retail  stores  has  been  made  through  improving  the  methods 
of  the  interview,  arranging  for  simple  trade  tests,  the 
use  of  a  well-worked  out  application  blank,  and  by  getting 
the  opinions  of  references  very  fully. 

Observing  the  Applicant.— The  interview  is  useful,  as 
suggested  above,  not  only  as  a  means  for  getting  informa- 
tion from  the  applicant  in  his  replies  but  also  as  a  means  for 
sizing  up  the  applicant.  The  applicant's  manner  talks 
to  the  skilled  employment  manager  as  loudly  as  the  applicant's 
speech.  How  the  applicant  is  dressed,  how  he  walks,  how  he 
talks,  his  reactions  to  questions,  his  attention  to  details,  what 
is  interesting  to  him  and  what  is  not — these  are  matters  which 
help  the  employment  manager  to  form  conclusions. 


\ 


104 


ECONOMICS  OF  RETAILING 


As  a  further  aid  to  judgment  the  employment  manager 
talks  with  the  applicant,  puts  him  at  his  ease,  and  draws  him 
out,  gets  him  to  talk  about  himself  and  his  ambitions  and  in 
this  way  learns  of  his  ideals  and  dreams,  at  least  to  a  cer- 
tain extent. 

The  size,  appearance,  and  figure  of  applicants  for  sales 
positions  must  be  given  careful  consideration.  The  more  ob- 
vious points  in  this  connection  may  be  handled  by  the  em- 
ployment manager,  such  as: 

A  girl  with  a  sallow  complexion  would  be  entirely  out 

of  place  in  the  toilet  goods  department. 
A  bald  man  .selling  a  hair  restorer  would  be  a  joke. 
A  young  man  or  woman  covered  with  cheap  jewelry 
certainly  does  not  belong  in  the  jewelry  department. 
Salespeople  who  look  very  young  will  have  difficulty  in 
closing  sales  in  departments  where  the  confidence  of 
customers  is  needed,   such  as  in  coats,   suits,   rugs, 
furniture,  and  so  on. 
Short  girls  do  not  look  well  behind  tall  show-cases  nor 
do  they  stand  the  work  well  if  they  have  to  reach  up 
for  goods  on  high  shelves  frequently. 
Tall  salespeople  are  not  ideally  fitted  to  become  good 
.shoe  salesmen.     A  tall  person  is  worn  out  bendmg 
over  to  fit  shoes. 
A  slow-moving  girl  is  entirely  out  of  place  in  an  active 

notions  department. 
It  seems  that  nobody  loves  a  fat  man  or  a  fat  woman 

in  retail  selling  positions. 
The  nicely  dressed,  pretty  young  lady  is  entirely  out 

of  place  in  the  house   furnishings  department. 
Frail-looking  people  should  not  be  placed  in  positions 

where  thev  have  to  do  a  great  deal  of  heavy  lifting. 

The  effect'is  not  only  hard  on  the  employee  but  also  on 

customers. 


SECURING  GOOD  SALESPEOPLE 


105 


The  Application  Blank 

Use  of  the  Application  Blank. — The  application  blank  sum- 
marizes all  the  information  that  the  employment  manager  can 
hope  to  get  satisfactorily  from  the  applicant.  The  following 
illustrates  a  form  of  application  blank. 

Application  for  Employment 


I. 

3- 

5- 
8. 


9- 
10. 

II. 

12. 

13- 
14. 

15- 
16. 

17. 
18. 

19. 
20. 
21. 
22. 

23. 

24. 
26. 
27. 
28. 
29. 
30. 
31. 


Position    desired 2.     Date 

Name    4-     Address 

Telephone ....     6.     Date  of  birth 7.     Where  born 

If  born  outside  of  country  are  you  naturalized? 

1st  papers 2nd  papers 

Where  was  your  father  born  ? 

Where  was  your  mother  born  ? 

What  is  or  was  your  father's  occupation  ? 

What  is  your  religion  ? 

Where  was  your  childhood  spent? In  city?. .  .On  farm? 

How  far  did  you  go  in  school  ? 

Name  schools  you  attended 

Are  you  living  with  parents  ? 

Are  you  single  ? Married  ? Divorced  ? 

Do  you  board? Rent  an  apartment? Own  your  own 

home  ?    

H'ow  many  and  whom  do  you  support  ? 

Do  you  want  a  permanent  or  temporary  position? 

What  preferences  have  you  as  to  your  work? 

Are  you  willing  to  do  any  work  assigned  to  you? 

Are  you  employed  at  present? Reason  for  desiring 

to  change   

When  can  you  begin  work? 25.     Salary  expected  now 

Salary  expected  within  two  years 

What  languages  other  than  English  do  you  speak?. .  .Read?. . . 

How  do  you  use  your  spare  time  at  present? 

What  are  your  favorite  forms  of  recreation  ? 

What    musical    instrument    do    you    play  ? 

Do  you  sing?.     32.     What  arts  do  you  practice? 


io6 


ECONOMICS  OF  RETAILING 


33.  When  in  school  what  were  your  favorite  studies  ? 

^4.  What  studies  did  you  disHke  most? ,' " ', '  *  * !, 

35  What  work  that  you  have  done  in  the  past  did  you  do  best  ? ...  • . 

36.  How  much  of  last  year  were  you  ill? Nature  ot 

illness    /  \"r    1 

^7     Have  you  any  physical  defects  ? . . . .  Nature  of  defects 

38*.     How  is  your  eyesight? 39-     He^^^"J- 

What  is  your  height? 4i-     Weight? 

Do  you  use  tobacco  much? Little Not  at  all? 

Do  you  use  drugs  ? 

Do  you  use  alcoholic  drinks? •  •  • 

Do  you  use  slang? 46.     Do  you  gamble?   

What  besides  pay  is  important  to  you  in  your  work. . ..... .  •  •  • 

48.  Experience.  Give  names  of  the  firms  you  have  worked  for, 
beginning  with  the   last 


40. 
42. 

43- 
44. 

45- 
47 


Name 


Address    

Reference    Address.    .... 

Position  held Employed  from, 

to Salary  received,  minimum. . 


maximum, 


Name    

Address    

Reference    Address.    .... 

Position  held Employed  from, 

to Salary  received,  minimum. . 


.maximum. 


Address, 


.maximum. 


Name    

Address    

Reference    

Position  held Employed  from, 

^Q  Salary  received,  minimum.. 

40     Personal  'rVfeVences.     Give  names  of  at  least  three  people  who 
^^'        hTve  known  you  for  at  least  five  years.    They  must  not  be 
relatives  or  previous  employers. 

Address  Occupation 


Name 


Date  of  interview. 


(Signed) 

Bv  whom  interviewed. 


SECURING  GOOD  SALESPEOPLE 


107 


Purpose  of  Questions.— Each  of  the  questions  in  the  fore- 
going model  application  blank  has  a  purpose.  For  example, 
"What  is  or  was  your  father's  occupation?"  may  seem  far 
fetched,  but  it  really  is  a  helpful  question  when  properly 
answered.  In  this  country  children  do  not  follow  their  fath- 
ers' footsteps  in  occupation,  but  most  fathers  talk  about  their 
work  at  home,  and  children  are  likely  to  pick  up  a  good  deal 
of  information  unconsciously  about  their  father's  line  of  busi- 
ness. An  applicant  whose  father  was  in  the  retail  business  is 
likely  to  know  a  great  deal  about  retailing.  If  the  appli- 
cant's father  was  in  the  textile  business,  that  would  be  con- 
sidered favorable  for  putting  the  applicant  in  some  depart- 
ment where  the  knowledge  he  undoubtedly  has  can  be  put  to 

good  use. 

"How  many  and  whom  do  you  support?"  helps  to  deter- 
mine whether  the  position  open  is  going  to  be  satisfactory  or 
not.  The  United  Cigar  Stores  Company  will  not  hire  a  man 
for  a  position  paying  less  salary  than  is  needed  to  sup- 
port the  applicant  and  his  dependents.  The  reasoning  back 
of  this  judgment  is  obvious.  A  man  cannot  continue  happily 
and  successfully  in  his  work  if  his  income  is  insufficient  for 

actual  needs. 

Questions  as  to  use  of  time  and  personal  interests  reveal 
the  true  man  or  woman  in  the  applicant.  What  we  play  at  is 
more  significant  than  what  we  work  at. 

References 


The  Value  of  References. — The  interview  and  application 
should  be  followed  up  by  a  thorough  inquiry  among  those  re- 
ferred to  in  the  application  blank.  Teachers  should  be  asked 
for  information  about  young  people,  and  former  employees 
and  associates  concerning  older  people. 

Upon  the  basis  of  actual  knowledge  gained  by  observa- 


io8 


ECONOMICS  OF  RETAILING 


tion  in  the  interview,  in  the  appHcation  blank,  and  by  inquiry, 
a  fair  judgment  can  be  approximated,  and  in  this  way  the 
right  employee  for  the  right  place  can  be  secured.  This  is 
the  first  step  to  reducing  labor  turnover  and  labor  costs  in  the 
store. 

Physical  Examinations 

The  Hindrance  of  Physical  Weaknesses. — One  of  the 
chief  causes  of  reduced  efficiency  in  retail  stores  is  the  physical 
unfitness  of  many  of  the  employees.  Striking  defects  such  as 
blindness,  deafness,  illness,  and  deformity  obviously  unfit  peo- 
ple for  selling.  These  defects  are  subject  to  all  possible 
degrees  and,  in  so  far  as  they  exist  at  all,  they  hinder  the 
individual's  progress  and  materially  reduce  the  efficiency  of 
the  store. 

Color  blindness  may  be  so  slight  as  to  pass  unnoticed  both 
by  the  individual  and  by  his  associates,  but  may  still  be  the 
cause  of  a  customer's  lack  of  confidence  in  his  taste  as  a  retail 
salesman. 

A  slight  deafness  may  be  the  unconscious  cause  of  inat- 
tention and  apparent  discourtesy. 

Weak  feet,  broken  arches,  corns,  badly  fitting  shoes  are 
more  than  likely  causes  of  irritableness,  lack  of  patience,  un- 
willingness, and  apparent  blindness  to  opportunity. 

Bad  digestion  has  probably  caused  more  people  to  do  the 
devil's  bidding  than  all  other  causes  put  together. 

Uncorrected  visual  defects,  teeth  needing  attention,  and 
wrong  diet  are  almost  certain  to  make  employees  perverse,  in- 
efficient, and  disagreeable  in  their  work. 

Hardly  ever  does  a  person  in  perfect  physical  condition 
fail  in  work.  When  a  person  fails  we  blame  his  will  and  his 
attitude  toward  the  work.  But  back  of  the  will  and  the  desire 
lies  the  physical  condition  that  determines,  in  most  cases,  the 
trend  of  both. 


SECURING  GOOD  SALESPEOPLE 


109 


The  Physical  Examination.— Another  aid  needed,  then,  in 
getting  the  right  kind  of  employees  is  a  thorough  physical  ex- 
amination at  the  time  of  employment,  and,  if  possible,  periodi- 
cally thereafter.  Such  an  examination  will  result  in  prevent- 
ing the  employment  of  the  psysically  unfit,  those  w^ho  would 
labor  under  handicaps  in  the  store,  and  those  with  contagious 
disorders  that  would  endanger  other  employees.  At  the  same 
time  such  examinations  will  be  of  value  to  the  applicants  them- 
selves. Their  attention  may  be  called  to  defects  of  which 
they  are  not  aware  and  thus  they  may  be  enabled  to  improve 
their  health  by  eradicating  such  weaknesses. 

That  there  is  need  for  physical  examinations  is  evidenced 
by  the  fact  that  more  than  half  of  the  people  between  the  ages 
of  18  to  45  are  so  defective  as  to  be  in  actual  need  of  medical 
or  surgical  treatment.  More  than  a  third  of  the  young  men 
between  21  and  31  years  of  age  drafted  for  army  service  were 
found  unfit  for  the  training  camps.  All  men  were  admitted 
who  suffered  from  ailments  that  might  be  successfully  treated 
in  camps. 

Examinations  made  by  industrial  concerns,  insurance  com- 
panies, and  by  the  Life  Extension  Institute  show  that  physical 
defects  are  fully  as  frequent  in  women  as  in  men.  Therefore 
physical  examinations  of  the  group  of  people  employed  by  a 
retail  store  are  certain  to  show  a  high  rate  of  impairment 
among  its  applicants  as  well  as  its  employees.  The  results 
of  physical  examinations  are  often  startling  eye-openers. 


Prescription  vs.  the  Physical  Audit. — Many  stores  now 
have  medical  departments,  particularly  in  connection  with 
their  welfare  w^ork,  but  the  functions  of  these  departments  are 
diagnosis  and  prescription  for  ailments  rather  than  the  making 
of  a  physical  audit. 

There  is  a  big  difference.  Both  are  important,  but  as  an 
aid  to  employment  it  is  the  audit  that  is  of  greatest  value. 


no 


ECONOMICS  OF  RETAILING 


A  physical  examination,  to  be  most  serviceable  as  an  aid  to 
the  employment  of  retail  salespeople,  should  cover  at  least  the 
following  points : 

Eyes — to  determine  visuality  and  ability  to  sense  colors 

Ears 

Nose  and  throat — to  note  whether  free  from  inflamma- 
tion, obstructions,  etc. 
Teeth,  gums,  and  tongue 
Scalp 
Skin 

Lymphatic  glands 
Blood  pressure 
Circulation 
Heart 
Lungs 

Digestive   organs 
Kidneys 
Genito-urinary 
Physique 
Posture 
Feet— look  for  flat  foot  or  tendencies  to  breaking  of 

arches 
Physical  defects 

Physical  examinations  can  be  secured  either  by  having 
them  made  by  the  store  physician,  if  there  is  one,  or  by  con- 
tract arrangement  with  some  outside  physician.  The  Life 
Extension  Institute  of  New  York  performs  this  sort  of  work 
on  a  large  scale  through  its  home  office  and  through  branches 
and  representatives  located  in  practically  all  of  the  principal 
cities.  It  makes  the  physical  examinations  for  certain  life 
insurance  companies  and  for  a  large  number  of  important  in- 
dustrial concerns.     In  any  case,  whoever  performs  this  service, 


SECURING  GOOD  SALESPEOPLE 


III 


it  should,  if  possible,    be    done    by    a    reliable,    well-trained 
physician. 

Objections  and  Expenses. — There  usually  is  a  little  objec- 
tion at  the  start  from  employees  and  from  applicants  to  having 
physical  examinations.  This  grows  out  of  misunderstanding 
and  may  be  overcome  entirely  by  patient  explanation  and 
tactful  handling. 

The  expense  of  physical  examinations  is  one  that  more 
than  pays  for  itself  in  the  long  run  in  increased  service. 
''Physical  examinations  pay"  is  the  verdict  of  practically  all 
concerns  that  have  tried  them  out  systematically. 


- :  ■!r^TaiLn--^.:.P,.,>«.,.^»^^^-^,.-y., 


Pi 


CHAPTER  IX 

EDUCATION  FOR  RETAIL  SALESPEOPLE 

Methods  of  Training  Employees. — Retail  store  managers 
have  probably  always  fully  recognized  the  need  for  giving 
special  attention  to  the  training  of  their  new  employees.  Even 
since  the  custom  of  serving  an  apprenticeship  passed  out,  new 
employees  have  usually  been  accorded  something  more  than  a 
"sink  or  .swim"  chance.  In  the  smaller  stores  the  managers 
themselves  have  generally  instructed  their  new  help.  In  the 
larger  establishments  new  employees  have  frequently  been 
turned  over  to  older  employees  or  to  heads  of  departments  for 
aid  and  instruction.  Thus  has  arisen  the  need  for  the  specialized 
trainer  of  employees,  the  teacher,  and  the  store  school,  for  the 
older  employee  and  department  head  were  in  the  nature  of 
things  almost  sure  to  fall  short  of  the  results  desired  by  the 
head  of  the  business.  The  passing  from  training  by  un- 
specialized  regular  employees  to  specialized  professional 
teachers  has  been  but  a  short  step. 

Thirty  years  ago  in  large  stores,  busy  superintendents 
hiring  salespeople,  mostly  inexperienced,  were  virtually  forced 
to  start  training  groups  or  classes  in  which  to  show  these  new 
employees  how  to  do  their  routine  work;  and  when  duties 
crowded  still  more  heavily,  to  hire  someone  capable  of  giving 
instruction,  to  do  this  for  them. 

The  training  of  experienced  employees  to  higher  efficiency 
had  to  wait  until  the  subject  of  salesmanship  had  reached 
teachable  form,  and  until  the  wave  of  vocational  education 
for  adults  had  brought  its  valuable  lessons.     Twenty  years 

112 


EDUCATION  FOR  RETAIL  SALESPEOPLE 


113 


ago  the  possibilities  of  retail  education  in  the  public  schools 
began  to  be  surmised.  Now  the  movement  is  under  way. 
It  will  probably  not  be  long  before  every  city  and  village  in 
the  country  will  have  in  its  schools  courses  in  retail  selling. 

Systematized  Instruction  for  New  Employees. — In  the 
meantime,  the  stores  have  been  developing  a  remarkable  tech- 
nique and  numerous  devices  for  the  instruction  of  salespeople. 
This  technique  is  a  tribute  at  once  to  the  great  interest  in  the 
education  of  retail  employees  and  also  to  the  great  need  for 
increased  efficiency.  Necessity  and  invention  have  traveled 
hand  in  hand. 

The  Store  Conference. — The  commonest  educational  plan 
followed  in  stores  is  the  sales  conference  under  the  direction 
of  the  head  of  the  store,  the  buyer,  or  some  other  store  execu- 
tive. A  great  many  stores  hold  these  meetings  weekly,  either 
in  the  morning  or  at  night,  after  store  hours.  At  these  meet- 
ings matters  of  store  policy,  retail  salesmanship,  new  mer- 
chandise, sales  methods,  and  so  on,  are  discussed.  Some  stores 
make  a  practice  of  inviting  to  these  meetings  outsiders  who 
may  have  something  to  contribute — traveling  salesmen,  mer- 
chants from  other  towns,  prominent  advertising  men  who,  as 
a  rule,  can  always  be  depended  on  to  be  willing  to  give  a  talk, 
teachers  of  business  subjects,  doctors  to  talk  on  how  to  take 
care  of  personal  health,  and  so  on.  The  store  conference  is 
an  old,  well-tried  method  of  developing  employees,  and  when 
properly  carried  out  is  most  excellent.  Nothing  proposed  in 
any  educational  plan  supersedes  it. 

Store  Manuals. — As  noted  in  Chapter  VII,  salespeople  are 
made  acquainted  with  their  duties  in  some  stores  through 
store  manuals,  sales  manuals,  and  department  manuals.  The 
larger  chain  store  systems  in  particular,   use  sales  manuals 


114 


ECONOMICS  OF  RETAILING 


to  a  marked  degree.  The  United  Cigar  Stores,  the  United 
Drug  Company,  and  the  American  Druggists'  Syndicate  are 
among  those  concerns  which  have  in  their  stores  excellent 
manuals  on  practice.  Many  department  stores  have  rule 
books  which  are  essentially  store  manuals.  Small  stores  fre- 
quendy  use  the  manuals  of  larger  stores  for  educational  pur- 
poses. The  preceding  chapter  in  this  book  contains  a  manual 
that  will  serve  this  purpose  directly,  and  also  indirectly  as  a 
guide  in  the  preparation  of  other  manuals. 

Manufacturers  are  awakening  to  the  fact  that  better  retail 
selling  will  help  their  lines,  and  that  retail  selling  is  a  matter 
of  education.  In  consequence,  many  have  prepared  booklets, 
sales  manuals,  letters,  correspondence  courses,  and  so  on  for 
retail  salespeople.  This  material  is  exceedingly  interesting 
and  any  retail  manager  or  employer  would  do  well  to  get 
acquainted  with  it  and  make  provisions  to  have  it  put  into 
use  among  his  employees. 

Trips  for  Salespeople.— Some  manufacturers  have  ar- 
ranged trips  through  the  factory  for  retail  salespeople,  partic- 
ularly for  stores  not  far  distant.  This  form  of  education  is 
desirable  and  salespeople  and  store  managers  should  make 
more  effort  to  procure  it  than  they  usually  do. 

Also  salespeople  may  profitably  visit  other  stores,  and, 
in  the  case  of  large  department  .stores,  visit  all  parts  of  the 
store  itself.  The  occasional  inside  trip  is  a  feature  very  help- 
ful both  to  the  salespeople  and  the  store.  Such  trips  put  the 
employees  in  touch  with  the  big  work  of  the  store,  help  them 
to  visualize  their  own  work  in  its  relation  to  other  depart- 
ments, and  help  to  secure  co-operation  with  other  departments. 

Efficiency  Bulletins.— Store  papers,  letters  to  salespeople, 
bulletin  board  notices,  and  efficiency  bulletins  constitute  other 
effective  methods  of  reaching  employees  with  current  infor- 


EDUCATION  FOR  RETAIL  SALESPEOPLE 


115 


mation.  While  such  bulletins  are  usually  confined  to  convey- 
ing notices  of  various  kinds,  there  is  no  reason  why  brief 
lessons  on  salesmanship,  on  merchandise,  and  on  store  policy 
may  not  be  communicated  to  the  sales  force  in  this  way. 

The  most  striking  success  in  the  use  of  this  means  of  educa- 
tion is  that  of  Wm.  Filene's  Sons  Company  in  Boston.  This 
concern  has  issued  "efficiency  bulletins"  to  its  force  of  em- 
ployees regularly  for  years,  covering  such  subjects  as  *'Mer- 
chandise  Calls,"  ^'Service  to  Employees,"  ''Talk  Merchandise, 
Not  Price,"  ''Summer  Visitors,"  "Promises,"  "Errors  in  Sys- 
tem," "Educating  the  Public,"  "Working  Together." 

Two  illustrations  of  Filene's  efficiency  bulletins  follow, 
one  on  "Satisfaction  versus  Selling,"  and  one  on  "Interpret- 
ing Merchandise  for  the  Customers." 


No.  171. 


Efficiency  Bulletin 
Satisfaction  Versus  Selling 


This  store  was  organized  and  equipped  not  for  one  day, 
one  year,  or  one  lifetime,  but  for  many.  To  insure  its 
future  we  must  look  beyond  the  immediate  sale  and  sales 
total  of  the  day. 

We  may  sell  to  a  customer,  or  we  may  satisfy  her — the 
two  are  not  yet  synonymous.  A  sale  may  be  made  though 
our  efforts  are  half-hearted.  A  customer  can  be  made  satis- 
fied only  by  earnest,  intelligent  effort  which  calls  to  aid 
all  the  resources  that  the  store  offers. 

To  illustrate: 

A  customer  came  to  us  to  buy  a  hunting  outfit.  She 
went  first  to  the  shirtwaist  department  and  explained  that 
she  wished  something  for  the  mountains.  She  knew  that 
she  wanted  a  flannel  waist,  but  could  not  give  the  exact 
style.  Those  shown  her  were  not  what  she  wanted,  and  so 
she  went  away  without  purchasing  when  the  sales  person 
said,  ''These  are  all  we  have." 

She  then  tried  to  get  a  skirt,  and  again  did  not  see  what 
she  wanted,  and  was  told,  "These  are  all  we  have" 


il 


11(5  ECONOMICS  OF  RETAILING 

She  abandoned  the  idea  of  getting  anything  for  herself 
and  looked  for  riding  outfits  for  her  two  daughters,  8  and  lo 
years  old.     She  met  with  the  same  reply. 

This  customer  was  leaving  our  store,  which  is  the  largest 
specialty  shop  in  New  England,  without  finding  what  she 
wanted. 

Fortunately,  she  was  intercepted.  The  result  was  that 
she  purchased  in  the  boys'  department  just  the  waist  she 
wanted,  found  in  another  department  a  heather-down  skirt 
such  as  is  used  exclusively  for  hunting  because  it  does  not 
wrinkle  or  shrink  under  any  weather  conditions;  bought 
in  the  boys'  department  two  corduroy  suits  which  were  ex- 
cellent for  riding  habits,  and  added  to  these  bloomers,  gar- 
ters, storm  shoes,  and  leather  gaiters. 

In  short,  we  had  what  she  wanted,  but  she  was  leaving  us 
to  buy  elsewhere,  because  of  our  lack  of  resourcefulness. 


No.  1 86 


Efficiency  Bulletin 


Interpreting   Merchandise   for   the   Customer 

Merchandise  has  a  history.  Much  has  happened  to  it 
before  it  reaches  our  hands.  It  may  have  come  from  a  re- 
mote part  of  the  globe — from  Australia,  India,  Russia, 
France,  Japan — and  passed  through  many  lands  on  its  way 
to  us. 

Its  present  history  begins  with  us;  its  future  depends 
upon  us. 

The  sales  person  makes  its  acquaintance  and,  to  a  certain 
extent,  studies  it.  She  studies  it  chiefly  from  the  point  of 
view  of  the  present;  that  is,  in  terms  of  stock — such  and 
such  a  price,  style,  color,  size,  in  such  and  such  a  location. 

The  average  customer  on  entering  a  shop  has  the  future 
point  of  view.  She  has  not  defined  the  article  she  comes  to 
buy;  she  may  know  nothing  of  its  past  or  of  its  present  exis- 
tence in  terms  of  stock.  She  has,  however,  a  use  for  it. 
We  determine  whether  that  need  is  to  be  supplied.  Thus 
there  is  a  mental  gulf  between  the  two  points  of  view. 

The  sales  person  who  approaches  with  questions  of  price, 
style,  color,  etc.,  shows  that  she  has  not  studied  and  grasped 


EDUCATION  FOR  RETAIL  SALESPEOPLE  117 

the  possibilities  of  her  merchandise,  the  uses  to  which  it  can 
be  put,  its  future.  Figuratively  speaking,  she  does  not  budge 
one  step  to  meet  the  customer,  but  attempts  the  dangerous 
task  of  making  the  customer  bridge  the  gap  and  walk  every 
step  of  the  way  to  her  till  they  are  on  common  ground. 

To  illustrate:  A  customer  asked  to  be  shown  a  coat  to 
wear  motoring  over  a  simple  silk  dress  that  she  had  on. 
She  was  using  her  suit  coat,  and  so  wished  to  purchase  for 
immediate  wear.  The  sales  person  said,  **We  haven't  any- 
thing; they  have  all  been  closed  out."  The  customer,  in 
surprise,  asked,  "What  kind  of  a  coat  do  you  think  I  want  ?" 
and  persisted  in  being  shown  something.  The  merchandise 
selected  was  so  inappropriate  that  she  went  away  without 
buying.  While  making  another  purchase  she  chanced  to  re- 
mark how  odd  it  was  that  in  such  a  large  store  she  could  not 
find  a  coat  for  her  purpose.  She  was  persuaded  to  try  again 
and  did  find  just  the  article  that  she  could  use.  Moreover, 
this  was  her  first  visit  to  the  store,  and  before  she  left  her 
cash  sales  amounted  to  about  $100. 

An  incident  like  this  is  peculiar  to  no  one  department.  It 
is  happening  in  all,  and  is  a  problem  for  all.  The  solution 
lies  in  studying  our  merriu«ndise  from  every  point  of  view, 
past,  present,  and  future — feeling  its  human  interest  and 
possibilities. 

The  more  we  interpret  its  past  as  well  as  its  present,  the 
better  able  are  we  to  interpret  its  future.  We  must  study 
its  future — the  individual  and  occasion  it  can  best 
serve.  If  we  study  our  merchandise  in  these  ways,  the  right 
customer  will  appear  and  we  shall  have  the  right  merchan- 
dise already  selected  for  her. 

Trade  Papers. — Trade  papers  constitute  the  course  of 
much  that  is  valuable  in  the  education  of  any  retail  worker. 
No  retail  salesman  can  be  said  to  be  completely  trained  unless 
he  has  acquired  the  habit  of  reading  trade  papers  regularly 
and  easily.  The  trade  press  is  essential  to  keeping  abreast 
of  progress  in  retailing.  Consequently  many  retailers  con- 
centrate their  efforts  on  getting  employees  to  read  trade  pa- 


ii8 


ECONOMICS  OF  RETAILING 


pers.  Definite  articles  in  definite  issues  are  assigned  and  usu- 
ally the  readers  are  quizzed  on  their  reading  to  make  sure 
that  they  have  understood  what  they  read.  The  reading  of 
trade  papers  as  a  part  of  a  retail  salesman's  training  is  cer- 
tain to  become  increasingly  important. 

i 

Libraries  and  Book  Collections.— A  few  stores  have  ac- 
quired book  collections  or  libraries  on  subjects  helpful  to  sales- 
people. This  method  reaches  the  type  of  employee  who  is 
naturally  studious  and  must  be  considered  a  helpful  supple- 
ment to  any  or  all  other  educational  means.  There  is  con- 
siderable literature  on  merchandise  and  on  buying  and  selling 
available,  so  that  there  is  no  excuse  for  passing  up  the  ques- 
tion of  using  books  on  the  ground  that  there  are  none  that 
are  helpful. 

Reading  Courses.— An  excellent  variation  of  the  use  of 
the  store  library  is  the  prescribed  and  supervised  readmg 
course.  For  example,  the  retail  salesman  in  the  trunk  and 
bag  department  can  be  asked  to  read  as  follows : 

I    Articles  on  leather  in  encyclopedias. 

2*  ''Leather    Goods,"    a    department    store    merchandise 

manual  written  by  M.  E.  Lehmann. 
3.  ''Retail  Selling  and  Store  Management,"  by  Paul  II. 

Nystrom. 
4      ''Salesmanship,"  by  William  Maxwell. 
5.  "Advertising  and  Selling  Practice,"  by  John  B.  Op- 

dycke. 
Similar  courses  of  reading  could  be  drawn  up  for  practi- 
cally all  branches  of  the  retail  trade,  and  would  certainly  be 
of  enormous  benefit.  The  key  to  their  success,  however,  is 
the  definite  assignment  of  books,  followed  by  qu.zzmg  and 
discussion. 


EDUCATION  FOR  RETAIL  SALESPEOPLE 


119 


Correspondence  Courses.— Along  the  same  line,  but  even 
more  definitely  arranged  from  the  standpoint  of  the  student, 
are  the  correspondence  courses  on  business  and  salesmanship 
now  offered  by  such  concerns  as  the  Alexander  Hamilton  In- 
stitute, New  York;  the  International  Correspondence  Schools, 
Scranton,  Pa. ;  and  the  Sheldon  School  of  Chicago. 

The  only  objection  to  these  courses  is  that  not  one  of  them 
covers  retail  selling  specifically  and  exhaustively.  They  are 
good  as  general  educational  courses  but  do  not  fit  the  imme- 
diate problems  of  retailing.  Something  more  has  been  done 
along  this  line  by  the  Extension  Divisions  of  the  Universities 
of  Wisconsin,  Minnesota,  and  Kansas.  The  ideal  correspond- 
ence course  in  retailing  is  yet  to  be  prepared. 


Progressive  Promotion  System  of  Training.— There  has 
also  been  a  marked  progress  in  training  salespeople  by  care- 
fully planning  the  steps  of  experience.  New  employees,  w^here 
possible,  are  in  many  stores  carefully  inducted  from  one  posi- 
tion to  the  next  and  so  on  leading  up  to  salesman  or  sales- 
woman. For  example,  a  girl  may  start  as  messenger,  then 
become  stock  girl,  packer,  or  inspector,  then  junior  salesgirl 
and  then  saleswoman. 

A  girl  beginning  as  stock  girl  in  notions  and  becoming 
saleswoman  in  notions  can  then  be  promoted  to  any  one  of  the 
following  departments : 

Laces 

Draperies 

Ribbons 

Trimmings 

Leather  goods 

Jewelry 

From  the  positions  outlined  above  the  line  of  promotion 
leads  to  assistant  buyer  and  then  to  buyer. 


\ 


120 


ECONOMICS  OF  RETAILING 


The  "Flying  Squad." -Another  plan  of  utiHzing  experi- 
ence as  training  is  to  put  all  new  employees  ready  for  sales 
positions  into  what  is  usually  called  the  "contingent  group" 
or  "flying  squad."  The  "contingents"  are  subject  to  call  from 
any  part  of  the  store,  wherever  there  may  be  a  demand  for 
extra  sales  help.  The  maintenance  of  a  contingent  group  thus 
serves  a  double  purpose— first,  as  a  means  of  taking  care  of 
special  calls  for  sales  help,  as  in  the  case  of  bargain  sales,  and 
second,  as  a  means  of  giving  the  new  salespeople  experience 
in  a  number  of  departments  and  thereby  helping  to  locate  the 
particular  lines  for  which  they  are  best  fitted.  The  contin- 
gent group  or  flying  squad  is  coming  to  be  a  part  of  every 
department  store  sales  organization. 

Occasionally  large  stores  employ  college  graduates  or 
other  young  people  of  exceptional  ability  or  training,  and 
put  them  through  an  apprenticeship  of  selling  in  a  number 
of  departments  m  preparation  for  more  serious  work  as  exec- 
utives. The  experience  of  the  various  departments  in  such 
cases  serves  as  education. 

The  Understudy  System.— There  is  a  plan  that  is  growing 
in  favor  among  large  retail  stores  and  even  in  smaller  ones, 
known  as  the  understudy  system.  Each  employee  occupying 
a  responsible  position  is  required  to  have  an  understudy,  one 
who  is  learning  to  do  the  work  and  who  will  be  capable  of 
taking  the  position  in  case  of  vacancy  due  either  to  promotion 
or  leaving.  This  plan  makes  of  every  employee  having  an 
understudy,  a  teacher.  If  promotion  is  made  dependent  upon 
successful  training  of  an  understudy  the  system  is  likely  to 

be  a  success. 

It  is  not  likely,  however,  that  this  system  will  be  widely 
used  in  retailing.  It  is  chiefly  useful  in  executive  positions. 
It  is  likely  to  suffer  in  application  to  ordinary  .selling  positions. 
Even  if   regular  employees  can  be   interested  sufl^ciently  to 


EDUCATION  FOR  RETAIL  SALESPEOPLE 


121 


help  an  assistant,  which  is  doubtful,  the  system  assumes  too 
much.  It  seems  to  take  for  granted  that  w^herever  there  is 
a  will  there  is  a  way  in  teaching.  Pedagogy  has  really  pro- 
gressed far  beyond  the  point  where  anyone  with  proper  intent 
can  teach  as  well  any  anyone  else.  We  now  have  teachers, 
or  at  least  the  knowledge  of  teaching,  that  puts  the  student 
who  works  under  specialized  direction  far  in  advance  of  the 
student  or  learner  not  so  favored.  For  general  application 
the  store  managers  of  today  must  consider  specialized  instruc- 
tion to  fit  their  needs  in  a  manner  that  goes  far  beyond  what 
the  understudy  plan  can  offer. 

The  understudy  system  has  marked  advantages,  however, 
for  certain  positions  of  an  executive  nature.  It  seems  possible 
that  each  buyer  might  well  have  an  understudy.  The  .store 
superintendent  might  have  an  understudy.  The  head  of  the 
delivery  department  should  have  an  understudy.  But  the 
proper  application  of  the  system  calls  for  a  careful  considera- 
tion as  fitting  their  needs  in  a  manner  that  goes  far  beyond 
what  the  understudy  plan  can  offer. 

Gilbreth's  Variation  of  the  Understudy  Idea. — Tlie  under- 
study .system  has  been  adapted  in  a  remarkable  way  by  Mr. 
and  Mrs.  F.  M.  Gilbreth,  efficiency  engineers  of  Providence, 
R.  I.,  under  what  they  call  the  ''three  position  plan."  Under 
this  plan  each  employee  should — 

1.  Have  an  understudy  for  whose  instruction  he  is  re- 

sponsible. 

2.  Have  regular  work  to  do  in  the  positions  filled. 

3.  Be  the  understudy  of  an  officer  or  workman  above 

or  be  a  student  preparing  for  a  higher  position. 

Thus  every  worker  under  the  Gilbreth  plan  would  be  at 
once  a  learner,  a  worker,  and  a  teacher.  Tliis  plan  has  not, 
according  to  the  information  of  the  writer,  been  applied  in 
any  general  way  in  any  retail  store.     Its  applicability  extends 


122 


ECONOMICS  OF  RETAILING 


wherever  the  understudy  systems  can  be  used.     It  is  pre- 
sented here  for  its  suggestiveness. 

The  School  of  Salesmanship 

The  Beginning  of  Salesmanship  Training. — Back  in  the 
early  eighties,  certain  publishing  houses  selling  books  on  the 
subscription  plan  made  a  fine  art  of  canvassing  by  carefully 
analyzing  the  work  to  be  done  and  by  systematically  teaching 
their  canvassers  the  best  ways  of  doing  their  work.  There 
may  have  been  earlier  schools  of  salesmanship  but  no  traces 
of  them  are  evident.  It  seems  that  the  distinctively  modern 
course  in  salesmanship  had  its  beginnings  in  the  book  can- 
vassing business. 

From  book  canvassing,  salesmanship  training  courses 
spread  to  magazine  selling,  picture  selling,  patent  medicine 
selling,  and  from  these  to  still  other  lines,  so  that  by  1900 
there  were  several  .specialty  manufacturing  concerns  giving 
their  salesmen  or  canvassers  training  courses  in  salesman- 
ship. The  National  Cash  Register  Company,  a  leader  among 
sales  organizations,  began  holding  salesmen's  meetings,  much 
like  schools,  as  early  as  189 1.  On  April  4,  1894,  the  first 
regular  training  school  started  with  37  men  in  attendance. 
Ten  years  later,  in  1904,  Hugh  Chalmers,  then  general  man- 
ager, said  that  out  of  the  1081  men  trained  in  this  school  dur- 
ing the  ten  years,  6t^  per  cent  had  succeeded  as  salesmen. 
In  most  concerns,  if  one  man  out  of  ten  makes  good  the  re- 
sult is  considered  satisfactory. 

Life  insurance  companies,  correspondence  schools,  nur- 
sery .stock  growers,  piano  and  phonograph  concerns,  and  office 
device  manufacturers  have  been  the  leaders  in  establishing 
training  courses  for  their  sales  employees. 

The  Literature  of  Salesmanship — We  have  already  listed 
in  the  first  chapters  of  this  book  some  of  the  earliest  books 


EDUCATION  FOR  RETAIL  SALESPEOPLE 


123 


written  for  retailers.  Some  mention  of  books  for  retail  sales- 
men may  not  be  out  of  place  at  this  point.  So  far  as  the 
author  has  been  able  to  learn,  the  first  book  written  dealing 
with  retail  salesmanship  was  F.  B.  Goddard's  '*The  Art  of 
Selling,"  published  in  1889.  This  book  seems  to  have  been 
written  primarily  for  traveling  salesmen,  but  does  contain 
several  sections  on  retail  selling. 

The  first  thorough  effort  in  book  form  specifically  for  re- 
tail salesmen  seems  to  have  been  George  S.  Cole's  *'The  Art  of 
Salesmanship,  a  Manual  for  Retail  Dry  Goods  Salesmen," 
issued  in  1895.  ^^-  Cole  was  also  the  author  of  ''Cole's  En- 
cyclopedia of  Dry  Goods,"  which  passed  through  several  edi- 
tions, the  first  appearing  about  1890.  It  is  safe  to  say  that 
"Cole's  Encyclopedia"  has  been  a  great  educational  help  to  a 
great  many  dry  goods  salesmen  in  this  country.  ''The  Art  of 
Salesmanship"  was  a  remarkably  well  written  volume,  a 
worthy  pioneer  in  a  worthy  field,  excelling  many  books  that 
have  .since  been  written  on  the  subject. 

Barcus'  "The  Science  of  Selling"  was  a  book  issued  in 
1894,  written  mainly  for  canvassers  but  also  including  con- 
siderable matter  for  "traveling  representatives  and  clerks." 
It  is  particularly  interesting  as  a  good  example  of  the  kind  of 
training  given  book  canvassers  back  in  the  eighties  and  nine- 
ties. 

After  1895  the  trade  papers  began  to  devote  considerable 
space  to  salesmanship  in  their  respective  lines  of  business,  and 
by  1900  there  was  quite  a  flood  of  matter  appearing  on  the 
subject.  In  1902,  A.  F.  Sheldon  started  his  famous  corre- 
spondence course  in  salesmanship,  and  its  almost  instant  suc- 
cess prompted  the  subsequent  preparation  of  a  number  of 
other  courses. 

By  19 10  .salesmanship  was  taught  in  Y.  M.  C.  A.  classes, 
and  business  colleges,  and  more  than  a  dozen  books  on  the 
subject  were  being  widely  sold. 


124 


ECONOMICS  OF  RETAILING 


Salesmanship  Instruction  in  Retail  Stores.— The  begin- 
nings of  systematic  instruction  in  salesmnaship  in  retail  stores 
are  hard  to  trace.  Educational  work  in  stores,  with  a  few 
exceptions,  even  to  this  day  is  sporadic — now  in  full  swing, 
now  stopped  entirely.  In  the  old  days  of  apprenticeship  for  re- 
tail clerks  before  the  Civil  War,  salesmanship  was  taught  by 
the  employer  by  precept  and  example.  But  apprenticeship 
ceased  to  exist  and  in  its  place  came  the  store  school  and 
education  in  retailing  through  public  schools. 

The  First  Store  School.— The  first  store  school  of  which 
there  is  definite  record  is  the  one  established  in  John  Wana- 
maker's  store  in  Philadelphia,  March  12,  1896,  known  as  the 
John  Wanamaker  Commercial  Institute,  and  later  changed 
in  name  to  American  University  of  Trade  and  Applied  Com- 
merce. Before  that,  there  had  been  store  conferences,  meet- 
ings conducted  by  buyers,  lectures,  and  so  on.  But  here  was 
the  first  real  store  school. 

The  Wanamaker  Commercial  Institute  at  first  admitted 
only  boys,  but  later  girls  were  admitted.  The  course  of  study 
at  the  start  covered  the  subjects  of  reading,  writing,  spelling, 
arithmetic,  grammar,  bookkeeping,  commercial  correspond- 
ence, physical  training,  and  singing.  Later  other  subjects 
were  added  including  studies  in  merchandise,  trades,  labora- 
tory work,  and  so  on. 

Then  came  the  establishment  of  educational  departments 
in  department  stores  generally  to  train  new  employees  how 
to  make  out  sales  checks  and  to  inform  them  concerning  store 
rtiles  and  policies.  By  19 10  there  were  many  stores  that  had  a 
department  responsible  for  this  much  training. 

Mrs.  Prince's  Work.— In  the  meantime  there  had  been  be- 
ginnings in  store  education  of  greater  meaning.  In  1905 
the  Women's  Educational  and  Industrial  Union  of  Boston 
undertook  an  investigation  of  training  needed  by  ^rls  who 


EDUCATION  FOR  RETAIL  SALESPEOPLE 


125 


wished  to  become  saleswomen.  Mrs.  Lucinda  W.  Prince,  a 
member  of  the  committee,  became  so  interested  that  she  re- 
solved to  devote  herself  to  it.  Mrs.  Prince  succeeded  in  get- 
ting the  Union  to  provide  a  room  and  equipment,  and  the 
first  class,  eight  girls,  none  of  them  actually  employed  in  retail 
stores,  was  opened  in  the  fall  of  1905.  Another  class  fol- 
lowed in  the  early  part  of  1906.  Neither  class  was  very  suc- 
cessful so  far  as  securing  positions  in  retail  stores  was  con- 
cerned. But  in  July,  1906,  Wm.  Filene's  Sons  Company  vol- 
unteered to  take  Mrs.  Prince's  students  for  part  time.  Later 
Jordan  Marsh  Co.,  Gilchrist  Co.,  Shephard  Norwell  Co.,  and 
C.  F.  Hovey  Co.  became  interested  and  agreed  to  take  students 
on  part  time  during  a  course  of  twelve  weeks'  instruction,  the 
instruction  coming  in  the  forenoons  and  store  work  in  the 
afternoons.  Under  an  arrangement  with  the  stores,  students 
also  were  selected  by  the  store  superintendents  from  sales- 
people already  employed. 

The  work,  though  limited  in  scope,  proved  a  .success. 
Gradually  large  stores  in  various  parts  of  the  country  became 
interested.  Mrs.  Prince's  graduates  were  called  upon  to  be- 
come store  instructors.  Naturally  the  next  step  was  the 
establishment  of  a  teacher's  training  course.  This  was  defi- 
nitely effected  in  19 12.  In  the  following  year  the  course  pre- 
pared by  Mrs.  Prince  was  taken  over  by  Simmons  College 
of  Boston  which  now  administers  the  training  course  for 
teachers  of  salesmanship. 

In  191 5  Mrs.  Prince  became  educational  director  for  the 
National  Retail  Dry  Goods  Association,  an  organization  of 
about  500  retail  store  members,  including,  besides  regular  dry 
goods  houses,  several  of  the  most  prominent  department  stores 
of  the  country.  In  this  capacity  she  has  w^orked  to  increase 
interest  in  department  store  education,  supervised  the  work 
of  store  teachers  employed  by  members,  and  urged  the  institu- 
tion of  classes  in  retail  selling  in  public  schools. 


126 


ECONOMICS  OF  RETAILING 


At  the  end  of  the  year  1916,  more  than  eighty  graduates 
had  been  turned  out  from  the  teachers'  training  course  estab- 
Hshed  by  Mrs.  Prince  in  Simmons  College.  These  graduates 
were  filling  positions  as  store  instructors  in  many  of  the 
largest  stores  in  the  country  and  in  a  few  public  schools. 
Mrs.  Prince's  course  of  study  for  saleswomen  and  teachers  is 
as  follows: 

Salesmanship 

Textiles 

Color  and  Design 

Economics 

Arithmetic 

Personal  Hygiene  from  the  point  of  view  of  busmess 

honesty 
Practical  Talks 

Diana  Hirschler's  Work.— Another  woman  who  had  an 
important  share  in  the  early  development  of  interest  in  teach- 
ing salesmanship  was  Miss  Diana  Hirschler.     Mrs.   Prmce 
came  to  the  work  of  training  salespeople  from  the  pomt  of 
view  of  the  social  worker,  teacher,  and  club  woman.     Miss 
Hirschler  made  her  approach  from  the  standpoint  of  a  direc- 
tor of  welfare  work.     In  1905  she  was  in  charge  of  the  wel- 
fare department  of  Wm.  Filene's  Sons  Company  m  Boston. 
The  city  seems  to  have  been  alive  with  interest  in  salesman- 
ship instruction  at  this  time.    The  Boston  Board  of  Education 
started  an  evening  class  during  the  winter  in  the  Bigelow 
School,  South  Boston,  at  the  request  of  both  wholesale  houses 
and  retail  stores.     Oven  50  men  and  women  attended.     The 
instruction  was  given  in  a  series  of  talks  by  leading  store  ex- 
ecutives, among  whom  was  Diana  Hirschler. 

In  1908  Miss  Hirschler  was  appointed  to  teach  a  night 
high  school  course  in  salesmanship  established  in  New  York. 
During  the  years  1906  to  1910  Miss  Hirschler  traveled  over 


EDUCATION  FOR  RETAIL  SALESPEOPLE 


127 


the  country  visiting  several  of  the  larger  stores  making  be- 
ginnings in  the  teaching  of  retail  selling,  generally  urging 
better  educational  methods  through  the  buyers  and  store  su- 
perintendents. For  a  considerable  time  Miss  Hirschler  con- 
ducted a  correspondence  course  showing  store  managers  how 
to  educate  their  employees.  In  1909  Miss  Hirschler  put  out 
her  book,  "The  Art  of  Retail  Selling,"  which  while  defective 
in  many  respects  from  a  mechanical  standpoint  and  contain- 
ing many  errors,  has  been  a  great  help  practically  as  well  as 
an  inspiration  to  those  interested  in  store  education  since  it 
was  written. 

The   Department   Store   Education   Association. During 

1914,  several  prominent  New  York  people  who  had  become 
interested  in  the  training  of  retail  salespeople  formed  the 
Department  Store  Education  Association  whose  objects  were 
as  follows : 

1.  To  study  at  first  hand  the  methods  and  conditions  of 

department  store  employment. 

2.  To  develop  salesmanship  to  the  status  of  a  skilled 

occupation  and  give  it  a  professional  standard. 

Shortly  after  this  association  was  organized  the  services 
of  Miss  Beulah  Elfreth  Kennard  as  educational  director  were 
obtained.  Miss  Kennard  began  her  work  by  studying  all  edu- 
cational methods  in  use  in  retail  stores,  and  as  a  result  of  her 
studies  brought  together  a  suitable  course  of  instruction  for 
use  in  stores  and  public  schools. 

Educational  work  was  established  in  some  of  the  New 
York  and  Brooklyn  department  stores  under  the  direction 
of  Miss  Kennard.  Later  a  Department  Store  Educational 
Council  was  formed  to  co-operate  with  the  City  Board  of 
Education  to  carry  out  an  educational  plan  for  retail  em- 
ployees.   This  has  since  been  developed  and  carried  to  a  large 


^^Si 


128 


ECONOMICS  OF  RETAILING 


extent  through  high  schools,  evening  schools,  and  continua- 
tion schools.  The  courses  of  study  outlined  were  more  thor- 
ough as  well  as  broader  than  anything  attempted  up  to  that 

time.  . 

A  training  course  for  teachers  was  established  in  New 
York  University  and  Miss  Kennard  was  put  in  charge.  One 
of  the  distinguishing  features  of  the  course  established  was 
the  attention  given  to  studies  of  merchandise  as  well  as  to 
salesmanship.  Salesmanship  in  Miss  Kennard's  courses  is 
considered  merely  as  a  means,  the  end  being  the  conveyance 
of  the  goods ;  and  the  quality  of  the  goods  is  rightly  consid- 
ered an  essential. 

The  Merchandise  Manuals.— A  noteworthy  development 
of  Miss  Kennard's  work  was  the  preparation  of  a  series  of 
''Merchandise  Manuals,"  covering  "Cotton  and  Linen  Goods," 
''Silks,"  ''Millinery,"  etc. — the  principal  lines  of  consumer 
goods— in  just  the  detail  needed  by  salespeople.  •  This  is  a 
contribution  that  is  coming  to  be  recognized  as  of  great  value 
and  is  certain  to  be  appreciated  more  and  more  as  the  move- 
ment for  education  for  retail  .selling  progresses. 

Another  noteworthy  work  by  Miss  Kennard  was  the  au- 
thorship of  a  helpful  handbook  for  teachers  of  retail  selling, 
'The  Educational  Director."  This  is  the  first  book  oudimng 
and  discussing  the  work  of  the  teacher  of  salesmanship  and 
is  well  worth  the  study  of  all  interested  in  the  education  of 

retail  salespeople.  . 

While  the  Prince,  Hirschler,  and  Kennard  educational 
movements  were  developing  in  the  East,  another  force  brought 
its  influence  to  bear  in  the  direction  of  training  for  salespeople 
in  the  Middle  West. 

University  "Merchant's  Courses."— In  1910  the  University 
Extension  Division  of   the  University  of   Wisconsin   estab- 


EDUCATION  FOR  RETAIL  SALESPEOPLE 


129 


lished  extension  courses  under  the  direction  of  the  writer, 
both  through  evening  classes  and  by  correspondence,  for  re- 
tailers and  retail  salespeople.  These  courses  soon  became  very 
popular.  Several  thousands  of  retailers  and  salespeople  pur- 
sued them.  Other  universities,  notably  Kansas,  Iowa,  Minne- 
sota, Washington,  and  Oklahoma,  have  since  adopted  similar 
courses. 

Progress  at  Other  Universities.— Another  university  move- 
ment for  better  retailing  began  in  191 3  in  conducting  ''Mer- 
chant's Short  Courses."  Both  the  Universities  of  Minnesota 
and  Kansas  held  such  courses  that  year.  Later  the  Universi- 
ties of  Iowa,  Illinois,  and  Oklahoma  established  similar  courses. 
The  merchants'  short  course  was  modeled  in  some  respects 
after  the  agricultural  short  course  for  farmers  that  is  held 
annually  in  most  agricultural  colleges  the  country  over.  The 
.students  in  attendance  were  men  and  women  actually  engaged 
in  business.  The  subjects  presented  included  the  most  prac- 
tical presentations  possible,  in  every  case  presented  by  experts 
in  merchandising  rather  than  academic  instructors.  The  mer- 
chants' short  courses  proved  highly  popular,  but  were  largely 
discontinued  during  the  war.     A  revival  may  be  expected. 

Throughout  the  work  of  the  universities  it  has  been  the 
purpose  to  encourage  interest  in  the  science  back  of  retailing 
and  to  point  out  the  need  of  teaching  retail  salespeople.  As 
a  result  of  the  agitation  of  the  universities  and  of  all  other 
sources,  retail  salesmanship  has  been  introduced  into  a  great 
many  schools,  beginning  in  the  Middle  West  in  Oshkosh, 
Wisconsin,  in  1910,  in  Boston  in  1912,  in  Duluth,  Minneapolis, 
and  Detroit  in  1913-1915,  and  so  on. 

Continuation  and  Public  Schools — Continuation  schools 
established  in  all  large  cities  in  Wisconsin  beginning  in  19 13 
included  retail  selling  in  many  instances.  The  only  reason  why 


130 


ECONOMICS  OF  RETAILING 


it  was  not  introduced  more  widely  at  the  start  was  because  of 
the  lack  of  teachers. 

The  teaching  of  salesmanship  in  public  schools  has  made 
rapid  strides  during  the  last  five  years.  It  will  probably  not  be 
long  before  salesmanship  will  be  a  regular  subject  in  every 
commercial  high  school  in  the  country. 

Carnegie  Institute  Course.— The  Research  Bureau  for 
Retail  Training,  established  at  the  Carnegie  Institute  of  Tech- 
nology, Pittsburgh,  in  May,  1918,  is  one  of  the  most  impor- 
tant of  these  recent  developments  in  retail  store  training. 

This  Research  Bureau  is  carried  on  with  the  co-operation 
of  the  leading  merchants  of   Pittsburgh,   who  have  under- 
written $32,000  a  year  for  five  years  toward  its  budget. 
The  chief  aims  of  the  course  are: 
"i.  To  provide  a  limited  group  of  able  people  with  tech- 
nical training   for  leadership  in  the  employment 
and  the  educational  departments  of  general  stores. 

2.  To  train  teachers  for  high-school  courses  in  retailing. 

3.  To  conduct  research  bearing  on  the  human  factor  in 

stores :  the  selection,  placement,  and  individual  de- 
velopment of  employees. 

4.  To  co-operate  with  the  public  schools  in  arranging 

part-time   courses  which  combine   schooling  with 
experience  in  stores." 
Eight  $500  fellowships  are  available  for  each  year. 
Through  intimate  association  with  actual  store  work,  sup- 
plemented by  courses  in  applied  psychology,   personnel  ad- 
ministration, and  retail  store  research,  the  students  are  ready 
upon  completion  of  the  course  to  assume  positions  as  teachers 
or  investigators  in  retail  stores. 

Training  for  Teachers.— Beginning  with  the  fall  term  of 
19 1 9,  New  York  University  established  a  new  two-year  course 


EDUCATION  FOR  RETAIL  SALESPEOPLE 


131 


for  the  trammg  of  teachers  of  retail  selling,  following  the  so- 
called  ''New  York  plan."  This  plan  calls  for  half-time  study 
of  the  principles  of  merchandising  and  half-time  in  train- 
ing in  practical  work  in  the  retail  store. 

For  entrance  to  this  course  a  college  degree  or  its  equiva- 
lent is  required,  and  additional  tests  are  made  to  make  sure 
that  the  applicant  possesses  qualities  which  in  the  judgment 
of  experienced  merchants  will  make  him  a  retail  store  execu- 
tive. Working  fellowships  paying  from  $700  to  $1,000 
have  been  provided  to  encourage  the  attendance  of  those  capa- 
ble of  making  able  scientific  study  of  the  subjects  assigned. 

The  general  policy  of  control  of  the  course  is  laid  down 
by  a  board  of  eleven  members,  of  whom  six  are  merchants, 
two  representatives  of  the  Board  of  Education,  and  three 
University  representatives.  The  merchants  are  in  control  and 
practical  results  may  be  expected.  Weekly  visits  will  be  made 
to  the  classes  by  committees  of  the  merchants.  Co-ordination 
of  store  training  with  university  study  will  be  secured  through 
a  special  officer  who  will  devote  his  time  to  investigation  of 
store  work  and  of  the  teaching  methods,  making  sure  that 
the  latter  fit  the  needs  of  the  .store.  The  close  correlation  of 
the  lectures  at  the  university  with  the  practical  w^ork  of  the 
stores  is  one  of  the  special  features  of  the  New  York  plan, 
the  students  attending  classes  in  the  forenoon  and  working 
in  stores  in  the  afternoon,  Saturday,  and  during  vacations. 

The  course  for  the  first  year  includes : 

First  Term : 
Business  Ethics 
Store  Organization 
Language  of  Business 

General  Science,  Arithmetic,  and  Elementary  Book- 
keeping 
Distribution  and  Management 


132  ECONOMICS  OF  RETAILING 

Second  Term : 

Store  Management 

Language  of  Business 

Textiles 

Distribution  and  Management 

The  course  for  the  second  year  includes: 

First  Term : 

Methods  of  Training 
Color  and  Design 
Personal  Relations 
Non-Textiles 

Second  Term : 

Method  of  Training 
Personal  Relations 
Non-Textiles 

The  purpose  of  the  course  is  to  train  teachers  not 
only  for  the  various  grades  of  the  public  schools,  but  also  for 
superintendents  of  training  and  for  managerial  positions  in 
retail  stores  in  general  and  department  stores  in  particular.  In 
this  respect  the  course  is  unique.  It  is  entirely  different  from 
any  other  educational  movement  affecting  retailing. 

It  is  expected  that  fully  as  many  graduates  from  the  course 
will  go  into  executive  retail  positions  as  into  teaching  posi- 
tions. Those  going  into  the  latter  positions  may,  after  ex- 
perience, through  having  taken  this  course,  be  promoted  to 
the  highest  grade  of  positions  in  retailing. 

Dr.  Lee  Galloway,  who  for  many  years  has  been  interested 
m  promoting  education  in  business,  is  director  of  the  course. 

Other  Courses.— Cognizance  of  the  need  for  retail  sales- 
manship as  a  subject  for  school  study  has  been  given  by 
teachers,  boards  of  education,  state  superintendents,  by  state 
teachers'    associations,    by   the   Educational    Association,    by 


EDUCATION  FOR  RETAIL  SALESPEOPLE 


133 


trade  education  organizations,  by  the  U.  S.  Commission  of 
Education,  and  by  the  Federal  Board  for  Vocational  Educa- 
tion. The  main  problem  from  now  on  will  be  getting  local 
communities  and  boards  of  education  to  act  in  authorizing 
the  start.     The  movement  is  on  the  way. 

Private  schools,  business  colleges,  the  Y.  M.  C.  A.,  and 
other  institutions  of  like  nature  have  not  overlooked  retail 
selling,  but,  on  the  whole,  have  not  been  so  .successful  with  it 
as  they  have  been  w^ith  such  subjects  as  bookkeeping.  The 
proper  place  for  the  education  of  salespeople  is  in  the  public 
school  system  and  in  the  stores  themselves. 

Outline  of  a  Course  of  Study  for  Retail  Salesmanship.-^ 
The  following  outline  w^as  prepared  by  Miss  Helen  C.  Wisner, 
Instructor  in  Salesmanship,  Girl's  Vocational  High  School, 
Minneapolis,  Minn.,  with  the  co-operation  and  approval  of  the 
executives  of  the  leading  department  stores  of  that  city. 

This  course  sets  down  all  of  the  needs  of  retail  salesman- 
ship without  regard  to  the  place  where  these  needs  are  to  be 
satisfied,  whether  in  store  or  school.  It  assumes  very  properly 
that  the  first  step  is  to  determine  fully  what  is  to  be  done.  Hav- 
ing this  outline  complete  it  may  be  easier  to  map  out  clearly 
the  work  in  the  store,  the  store  school,  and  the  public  school. 

Course  in  Retail  Salesmanship 

I.  Introductory  Course  for  Aisle  Girls,  Messengers,  Stock- 
keepers,  AND  Others  who  wish  to  Qualify  as  Salespersons. 
(i)  To  test  general  ability;  (2)  to  determine  the  attitude  toward 
store  work;  and  (3)  to  serve  as  a  basis  for  eliminating  those 
lacking  fundamental  education. 
A — Arithmetic 

I.     Fundamental  processes,   common  and  decimal    frac- 
tions as  applied  to — 

(a)  Money. 

(b)  Quantities. 

(c)  Measurements. 


134  ECONOMICS  OF  RETAILING 

B — English  and   Spelling 

1.  Oral  English. 

(a)  For    ability    to    express    simple    information 

about  merchandise  correctly. 

(b)  For  use  in  greeting  a  customer  and  in  ordi- 

nary conversation. 

2.  Dictation  exercises  to  test — 

(a)  Ability  to  take  customers'  orders  or  direc- 

tions. 

(b)  Common  facts  about  merchandise. 

3.  Spelling  lists  of  words  selected  to  suit  the  needs  and 

abilities  of  each  group  of  beginners. 

(a)  Words  in  common  use. 

(b)  Names  of  merchandise. 

(c)  Names  of  streets. 

C — Personal  Hygiene  and  Dress 

1.  Care  of  the  hair,  nails,  and  teeth. 

2.  Neatness  in  dress  and  its  importance  in  store  work. 

D — Store  Deportment 

1.  Toward  customers. 

2.  Toward  fellow  employees. 

E — Store  System 

1.  How  to  make  out  sales  slips. 

2.  Policy  of  the  store  with   regard  to  exchanges  and 

refunds. 

3.  Policy  of  the  store  with  respect  to  the  treatment  of 

customers. 

II.  Elementary  Salesmanship,  (i)  To  test  the  talent  for 
salesmanship;  (2)  to  serve  as  a  basis  for  eliminating  those  un- 
suited  for  store  work;  and  (3)  to  assist  in  classifying  workers 
as  stockkeepers,  sales  persons,  or  office  workers. 

A — Salesmanship. 

I.     Elementary  principles. 

(a)  How  to  greet  customers. 

(b)  How   to   find   out   customers    needs. 


EDUCATION  FOR  RETAIL  SALESPEOPLE 


(c) 


135 


•I 


How  to  hold  the  customer  until  a  more  ex- 
perienced sales  person  can  give  her  the 
attention  desired. 

(d)  How  to  locate  stock  in  the  department. 

(e)  Such  elementary  information  about  stock  as 
prices,   stock   numbers,   special   names,   or 

other  means   of   identifying   stock. 

2.  Care  of  stock. 

(a)  How  to  dust,  brush,   clean,  and   fold  stock. 

(b)  How  to  replace  it  in  boxes  on  the  shelves. 

3.  Demonstration  sales  applied  to   familiar  miscellane- 
ous  merchandise. 

(a)  Practice     in     making    a   sale     through    the 
demonstration, 
(i)     How  to  show  the  goods. 

How  to  interest  the  customer. 

How  to  meet  the  customer's  ob- 
jections. 

How   to   substitute   merchandise. 

Closing  the  sale.  Making  the  sales 
slips. 

Accounting  and  giving  the  customer 
change. 

(b)  Relation    of   counter    display,    store    display, 

and    advertising   to    selling. 

B — Arithmetic 

1.  Drill  in  the  use  of  fundamental  processes  in  arith- 

metic, fractions,  and  decimals  based  on  problems 
taken  from  daily  routine  of  the  store. 

(a)  On  sales  slips. 

(b)  Rapid    drill    for    accuracy    and    speed. 

2.  Short  methods  for  making  computations  used  in  the 

store. 

3.  Practical   business   problems    in    interest    and    profit 

and  loss. 

C — English 

I.     Oral. 

(a)     Talking  about  merchandise. 


(2) 
(3) 

(4) 
(5) 

(6) 


If 


136  ECONOMICS  OF  RETAILING 

(b)  Repeating  and  giving  directions. 

(c)  Telephone  conversation. 

(d)  Talking  to  employers  when  applying  in  per- 

son for  a  position. 

2.  Written. 

(a)  Business    letters. 

(i)     Letters   of  inquiry. 
(2)     Answers    to    inquiries. 

(b)  Short  descriptions  of  merchandise. 

3.  Dictation. 

(a)  Directions   for  amounts,   kinds  of  merchan- 

dise. 

(b)  Names  and  addresses  of  customers. 

(c)  Short  business  letters. 

4.  Reading  such   literature  on   salesmanship   and   mer- 

chandising as  beginners  can  understand. 

(a)  Salesmanship  literature. 

(b)  Descriptions  of  merchandise  and  methods  of 

manufacture. 

(c)  Trade  journals. 

5.  Spelling. 

(a)  Words  in  common  use. 

(b)  Names      of      merchandise,      especially      the 

kinds  that  are  being  handled  from  day  to 
day,  and  new  merchandise. 

(c)  Drill  in  names  of  streets. 

(d)  Abbreviations  in  common  use. 

D — Penmanship — for  Legibility  and  Speed 
E — Color  and  Design 

I.     Unity  and  variety  as  applied  to  merchandising. 
(a)     Harmony  of  color. 

(1)  Matching  and  blending  of  colors  in 

fabrics  and  trimmings. 

(2)  Combining  colors  for  store  displays. 

(3)  What  to  avoid  in  showing  colors  to 

customers. 
2.     Study  of  line   and   space  as  in   plaids,   striped   and 
figured  goods. 


EDUCATION  FOR  RETAIL  SALESPEOPLE 


137 


2. 
3. 


3.  Talks  on  what  constitutes  good  taste. 

4.  Art  vocabulary  for  business  purposes,  etc. 
(a)     Accepted  trade  names  for  colors,  etc. 

b)     Descriptive  terms  as  smart,  chic,  mode,  etc. 

F— Business  Ethics,  Store  Deportment,  and  Citizenship 
I.     Relation   of   employer   and    employee. 

Loyalty  of  employer  and  employee — reasons  for. 
Good  manners  and  courtesy — reasons  why  they  are 
an  important  part  of  salesmanship. 
4.     Discussion    of    laws    relating   to    store    employment, 
school   attendance,   and   community   life,    in   their 
relation  to  self  and  others. 

G — Personal  Hygiene  and  Health 

1.  Health — a  business  asset. 

2.  Simple  rules  for: 

(a)  Sleeping. 

(b)  Bathing. 

(c)  Exercise. 

(d)  Proper  food — the  noon  lunch. 

3.  Dress — its  relation  to  health,  attractive  appearance, 

and  business. 

4.  Exercises    in   proper    sitting   and   standing. 

5.  Recreation. 

6.  Care    of    the    teeth,    nails,    eyes,    and    hair. 

H — Textiles:     How   to   Know   Staple   Fabrics 

1.  Names  of  cotton  fabrics  and  drills   in   recognizing 

them;  also  market  prices,  widths,  and  uses. 

2.  Names  of  woolen  fabrics,  names  of  weaves,  how  to 

recognize  them,  widths,  and  market  prices. 

3.  Linen   fabrics,  their  names,  prices,   weaves,   widths, 

and  uses. 

4.  Instruction  about  one  or  more  of  the  textile  fibers. 

III.  Salesmanship  and  Department  Duties.  Pupils  for  these 
courses  (when  given  in  the  store)  should  be  taken  from  the  depart- 
ments having  merchandise  with  points  in  common.   This  course  is  a 


y 


138 


ECONOMICS  OF  RETAILING 


II 


If 


II 


•i 


continuation  of  the  elementary  course.  Its  aims  are  :(i)  to  develop 
selling  ability;  (2)  to  give  specific  information  about  merchandise 
and  methods  of  obtaining  such  information;  (3)  to  give  methods 
for  learning  new  points  about  merchandise;  and  (4)  to  develop 
ability   to   meet   and   deal   with   people. 

A — Salesmanship  Applied  to   Specific   Merchandise 

1.  Demonstration  sales,  with  discussion  and  analysis  of 

the  principles  of  making  a  sale. 

(a)  Gaining  the  attention. 

(b)  Interest. 

(c)  Desire. 

(d)  Decision. 

2.  Planning  of  demonstration   sales   by   pupils. 

3.  Suggestion   in   salesmanship. 

4.  Care  and  arrangement  of  stock. 

(a)  In   the  department. 

(b)  On  the  shelves  or  in  boxes. 

(c)  Display  of  stock  on  the  counters  and  in  the 

cases. 

5.  Merchandise  talks  by  buyers. 

6.  Talks  on  advertising  by  advertising  manager. 

7.  How  to  cultivate  customers  and  gain  good-will  for 

the  store. 

8.  Relation    of    good    health    to    efficient    service. 

9.  Personal  qualifications  (as  expressed  in  manner  and 

dress)   required  for  successful  salesmanship. 
10.     Study   of  trade  journals,   with   reports   and  discus- 
sions. 

B — Arithmetic 

1.  Continuation  of  drill  as  given  in  the  previous  course, 

if  necessary. 

2.  Elementary     accounting    and    principles    of    book- 

keeping. 

3.  Personal  accounts. 

4.  Apportionment   of  personal   income   for: 

(a)  Living. 

(b)  Dress. 

(c)  Savings. 


EDUCATION  FOR  RETAIL  SALESPEOPLE 


139 


(d)  Recreation. 

(e)  Philanthropy  and  church.* 

C — English 

1.  Oral  continuation  of  the  work  outlined  in  the  pre- 

vious course  as  applied  to  the  demonstration  sales 
and  talks  about  merchandise. 

2.  Written. 

(a)  Descriptions  of  merchandise. 

(b)  Plans   for  demonstration  sales. 

(c)  Selling  talks. 

(d)  Taking   notes    from    buyers'    talks    and    ad- 

visers' talks. 

3.  Reading. 

(a)  Keeping  up  to  date  with  trade  journals. 

(b)  Methods    for    manufacture    of   merchandise. 

(c)  Current  magazines  and  newspapers  for  gen- 

eral information. 

(d)  Literature,  selected  classics. 

D — Commercial  Geography 

1.  Where  merchandise  comes  from. 

2.  How  shipped — freight,  express,  boat. 

3.  Cost  of  transportation — freight,   express,  duty,  and 

so  on. 

4.  Sources  of  raw  materials. 

E — Spelling 

I.     Occasional  drills  to  keep  up  to  date  with  new  terms 
used  in  merchandising,  in  styles. 

F — Color  and  Design 

I.     Balance  and  accent,  more  advanced  work  in  blending 
of  colors  for  the  sake  of: 

(a)  Light   and  dark   in   colored   fabrics. 

(b)  How    to    recognize     neutralized    colors     in 

fabrics. 

(c)  How  to  suggest  warmth  or  coolness  in  color 

and  when  they  are  to  be  used  for  dress, 
furnishings,  and  so  forth. 


140 


ECONOMICS  OF  RETAILING 


2. 


Design, 
.(a) 


"    .    ; 


Arrangement,   balance,    and    accent. 

(l)     How     to     arrange      trimmings     or 
draperies. 
Regularity,  as  in  making  two  sides 

alike. 
Irregularity. 

Lines    applied    to    trimmings    or 
draperies. 

(2)  Value  of  colors  in   relation  to  their 

use,   as   in  dress,   trimmings,   and 
furnishings. 

(3)  Textures  of   fabrics  and  their  rela- 

tion    to     dress,     trimmings,     and 
furnishings. 

(4)  Place  of  color,  line  proportion,  etc., 

in   advertising   and   display   work. 

(5)  Talks  on  what  constitutes  good  taste. 


IV.  Course  for  Assistant  Buyers  and  Buyers.  This  course  to 
take  the  form  of  a  club  of  forum  lectures,  discussions,  and  de- 
bates.    The  following  topics  are  suggested: 

A — Market  Centers  for  Various  Kinds  of  Merchandise 


B- 


J  1 


Study  of  Merc 

:handise 

I.     Factors 

affecting  merchandise. 

(a) 

Quality. 

(0 

Grades    of    raw    materials. 

(2) 

Mixtures  used  in  materials. 

(3) 

Adulterations. 

(4) 

Methods  of  finishing. 

(b) 

Price. 

(I) 

Style. 

(2) 

Quality. 

(3) 

Workmanship. 

(4) 

Demand. 

(5) 

Transportation  facilities  and  prox- 
imity of  market. 

II 


EDUCATION  FOR  RETAIL  SALESPEOPLE  141 

2.     Factors  governing  selection  of  merchandise. 

(a)  Style. 

(b)  Use. 

(c)  Service. 

(d)  Amount. 

(e)  Price. 

(f)  Jobs  lots. 

(g)  Discounts. 

C — Supply  and  Demand  as  Related  to   Merchandising 

D — Current  Labor  Conditions  and  Problems  and  Their  Effect 
on  Merchandising 

E — Store  Arrangement  as  to  Location  of  Departments 
F — Department  Arrangement 

1.  Methods  for  placing  merchandise. 

2.  Shifting  merchandise  for  seasonal  demands. 

3.  Featuring  stock. 

G — Department  Management 

1.  Policies  relating  to  dealing  with  employees. 

2.  Management  of  stock  as  in  planning  for  turnover. 

H — Current   Legislation,   Especially   in   Its   Bearing  on   Store 
Work  and  Merchandising 

I — Lectures  on  Commerce  and  Business  Problems  by  Authori- 
ties 

J — Textiles 

1.  Drill  in  recognizing  staple  fabrics  continued. 

2.  Drill    in    names,    kinds,    grades,    widths,    prices    of 

staple  and  popular  silks. 

3.  Study  of  weaves — how  they  are  made. 

(a)  Plain  w^eave. 

(b)  Basket. 

(c)  Cord. 

(d)  Twill. 

(e)  Serge. 

(f)  Brocade. 

(g)  Satin. 

(h)     Marquisette  or  scrim, 
(i)     Nap. 


'f 


II 


^i 


142  ECONOMICS  OF  RETAILING 

4.  Simple  tests  for  wool,  cotton,  silk,  and  linen  fabrics. 

How  to  know  mixtures. 

5.  Such  simple,  practical  comparisons  as  difference  be- 

tween damask  and  crash;   serge  and  broadcloth; 
cotton  twill  and  Indian  head. 

6.  Dyes — where  they  come  from,  how  made,  and  how 

used. 

7.  Weighing  and  finishing  fabrics. 

8.  Sources   of   raw   textile   fibers. 

(a)  How   secured. 

(b)  Preparation    for    spinning    and    weaving. 

V.  Advanced  Course  in  Salesmanship  for  persons  who  have  been 
in  the  store  a  year  or  more.  To  be  conducted  as  class  work  or 
club  work  for  persons  selected  from  allied  departments.  The  ob- 
ject of  this  course  is  to  develop  a  knowledge  of  scientific  salesman- 
ship and  for  the  study  of  merchandise. 

A— Demonstration  Sales,  with  Discussion  and  Grading. 

B— Discussions  of  Such  Store  Problems  as: 

Problems  of  merchandising. 

(a)  Division  of  merchandise  among  departments 
and   sales  people. 

(b)  Methods  of  keeping  j:tock. 

(c)  Plans  for  disposing  of  stock. 

(d)  Featuring  out-of-season  stock. 

(e)  Display  of  stock. 
Problems  of  discipline. 

(a)  Team-work  in  departments  and  in  the  store. 

(b)  Deportment   in   the   store,   employees'    codes 
and  standards  versus  those  of  employers. 

(c)  Treatment  of  customers. 
Ways  of  improving  service. 

(a)  For  convenience  and  comfort  of  customers. 

(b)  For   saving  time   and   energy   of   employees. 
Required  readings  from  trade  journals  and  books  on 

salesmanship,  discussed  or  debated. 
Current    literature,    mag:azines,    newspapers. 


I. 


4- 


5- 


»* 


EDUCATION  FOR  RETAIL  SALESPEOPLE 


143 


6.  Industrial  history  as  related  to  merchandise. 

(a)  History  of  sources  and  uses  of  merchandise. 

(b)  Evolution  of  manufacturing  methods  and  the 

effect  upon  merchandise  as  to: 
(i)     Quality. 

(2)  Cost. 

(3)  Colors. 

(4)  Design   in   decorative   patterns. 

7.  Literature,    selected   classics. 

Bibliography 

Department  Store  Merchandise  Manuals.  B.  E.  Kennard,  Editor. 
Dr.  Lee  Galloway,  Consulting  Editor.  Ronald  Press  Com- 
pany, New  York.     1918.     (Additional  volumes  in  preparation.) 

The  Educational  Director.  By  B.  E.  Kennard.  An  excellent 
outline  of  the  duties  and  responsibilities  of  the  educational 
director  in  department  stores. 

Cotton  and  Linen  Goods.     By  E.  B.  Thompson. 

Glassware.     By  M.  A.  Lehmann. 

House  furnishings.     By  E.  L.  Hutchinson. 

Jewelry.     By  B.  E.  Kennard. 

Leather  Goods.     By  M.  A.  Lehmann. 

Millinery.     By   C.   R.   Aiken. 

Notions.     By  M.  A.  Souder. 

Silk.     By  E.  B.  Thompson. 

Stationery.     By  M.  A.  Lehmann. 

Field,  L.  F.  Service  Instruction  of  American  Corporation,  Bureau 
•of  Education,  Bulletin,  1916,  No.  34. 

Galloway,  Dr.  Lee.  Office  Management.  The  Ronald  Press  Com- 
pany, New  York,  1919.  Contains  a  discussion  of  the  train- 
ing  of   salespeople,   together   with   outlines   of   courses. 

Kelley,  R.  W.  Hiring  the  Worker.  Ronald  Press  Company,  New 
York.  1918.  Contains  a  chapter  on  education  of  employees  that 
deals  in  part  with  the  education  of  store  employees. 

Maxwell,  Wm.  The  Training  of  a  Salesman.  J.  B.  Lippincott 
Company,  Philadelphia.  1919. 

Norton,  H.  R.  Department  Store  Education.  Bureau  of  Education, 
Bulletin,  1917,  No.  9.     Department  of  the  Interior,  Washington, 


I 


144 


ECONOMICS  OF  RETAILING 


1917.     This  bulletin  gives  a  complete  historical  account  of  the 
work  of  Mrs.  Lucinda  W.  Prince. 
O'Leary,   Iris   P.     Department   Store  Occupations.     Cleveland  Edu- 
cation Survey,  Cleveland,  Ohio.     1916. 

Prince,  Mrs.  L.  W.  Retail  Selling.  Commercial  Education,  Series 
No.  I,  Bulletin  No.  22.  Federal  Board  for  Vocational  Educa- 
tion, Washington,  1918.  This  bulletin  outlines  fully  the  courses 
followed  in  the  Union  School  of  Salesmanship  in  Boston  and 
the  training  course  for  teachers  in  Simmons  College,  also  sug- 
gestive courses  drawn  up  by  Mrs.  Prince  for  continuation 
schools,  evening  schools,  and  high  schools.  It  presents  a  list  of 
cities  in  which  Mrs.  Prince's  graduates  are  working  in  public 
schools  and  in  retail  stores,  and  a  good  bibliography  on  retail 
selling.     A  very  helpful  publication. 

Tolman,  W.  H.  Social  Engineering.  McGraw  Publishing  Company, 
New  York.  1909.  Contains  an  excellent  chapter  on  education 
of  employees. 


CHAPTER  X 


THE  WAGES  OF  SALESPEOPLE 

Percentage  of  Wages  to  Total  Expense Wages  in  a  re- 
tail store  constitute  the  largest  single  expense  item,  and  out 
of  this  total,  the  amount  paid  for  selling,  that  is  to  salespeople, 
is  normally  the  largest  part.  The  expense  for  salespeople's 
salaries  or  wages  varies  a  great  deal  with  different  lines,  with 
different  stores,  and  to  a  considerable  degree  within  the  same 
store,  and  even  within  the  same  department.  For  example, 
general  averages  for  five  department  stores  known  to  the 
writer  range  from  5  to  8  per  cent  of  the  total  net  sales,  but 
within  the  .stores  the  wages  of  the  salespeople  range  from  as 
low  as  2>4  per  cent  in  some  departments  to  as  high  as  12  per 
cent  in  others.  These  figures  are  corroborated  by  practically 
every  statement  of  department  store  expenses  that  has  been 
made  public. 

Statistics  of  Sales  Expense. -The  following'  is  one  of  the 
best  statements  that  has  come  to  the  attention  of  the  writer. 
It  shows  the  average  percentage  of  expense  for  three  of  the 
large  department  stores  of  New  York,  and  also  the  specific 
percentage  of  expense  of  one  of  the  three  stores  for  three 
years  in  succession.  The  only  criticism  that  may  be  offered 
from  the  standpoint  of  the  purposes  of  this  chapter  is  that  the 
figures  include  not  only  salaries  for  salespeople  but  also 
buyers,  stock  clerks,  and  other  labor  directly  chargeable  to 
the  department. 

*  Adapted    from    tables    presented    in    the    Dry    Goods    Economist,    September    27, 
X9i3»  October  25,  1913,  April  23,  1914.  and  March  27,  1915. 


146 


ECONOMICS  OF  RETAILING 


Percentage  of  Expense  for  Selling  by  Departments 
IN  New  York.  Department  Stores 


Departments 


Books  ^nd  stationery 

Carpets,  mattings,  rugs 

China,  glassware,   lamps 

Clothing  (men's  and  boys') . 

Corsets    

Dress  goods 

Furniture  and  bedding 

Furs    

Gloves    

Groceries    

Handkerchiefs    

Hosiery     

Infants'   wear    

Jewelry,  silverware,  cutlery. 
Laces,  embroideries,  veilings 

Leather   goods    

Millinery    

Muslin,   underwear  and  un- 
derskirts      

Neckwear    (women's)    

Notions  and  art  embroidery 

Pictures     

Ribbons     

Sewing   machines    

Shoes    (women's)    

Silks  and  velvets  

Suits  and  coats   (women's) . 

Suits  (misses')   

Toilet  goods,  drugs,  perfum- 
ery     

Toys     

Trimmings     

Umbrellas,  parasols,  canes.. 

Underwear    (knit)    

Upholsteries     

Waists  and  women's  sweat- 
ers      

Wash  goods    

White  goods,  linens 

Wrappers,  kimonas   


t;  u  o 


9.0% 

8.9 

9.8 

8.9 

5.8 
9.8 
8.0 
6.3 
6.1 
9.4 
6.6 
6.0 
7.3 
9.4 
8.2 
6.4 
8.7 

6.5 
8.8 
9.4 
10.8 
9.4 
8.3 
9.7 
8.4 

8.0 

7.7 

7.8 

12.9 

8.4 

5.9 

7.9 

9.5 

7.7 

10.3 
7.6 
8.7 


u 

O  1J  u 

^^  o  (u 

<6 


9.5% 
7.9 
ILl 

8.1 


12.6 
12.2 
6.7 
5.7 
8.5 
6.8 
6.3 
5.0 
9.3 
8.5 
6.4 


4.9 
8.5 
7.7 
10.8 
7.4 
8.3 
8.8 
8.4 

7.1 

7.4 

8.0 

13.1 

9.3 

4.7 

6.2 

9.4 

7.0 

9.9 
6.2 
7.0 


u 

OJ 


u  O 


9.4% 
7.2 
10.7 

8.1 

•  ■  • 

9.0 
9.9 
9.9 
5.9 
8.5 
7.6 
6.0 
4.9 
9.2 
8.1 
6.9 


5.4 
8.3 
8.0 

11.3 
6.2 

12.3 
9.0 
8.4 

7.0 

7.7 

7.8 

13.9 

9.3 

•  • 

6.0 
10.0 

6.8 

9.1 
5.7 
7.1 


;cn 


u 


11.4% 
6.9 
11.6 

J  6.6  Boys' 
l9.4  Men's 

*9.7 
9.6 
8.5 
5.8 
8.8 
6.9 
6.4 
5.3 
100 
8.5 
7.1 


5.6 

8.7 

8.6 
11.7 

8.8 
15.7 

9.1 

8.4 
(8.1  Suits 
1  7.4  Coats 


6.5 
13.9 
10.6 

\  6.8  Men's 
]  6.1  Women's 
10.0 

f  6.7  Waists 
I  4.9  Sweaters 

9.4 

6.5 

7.7 


THE  WAGES  OF  SALESPEOPLE 


147 


Percentage  of  Salespeople's  Wages  to  Total  Sales. — Simi- 
lar ranges  in  percentages  are  frequently  found  within  a  given 
department.  The  writer  has  seen  cases  where  salespeople 
working  within  a  given  department  were  costing  the  firm 
from  3  per  cent  to  10  per  cent  of  their  sales,  and  a  fact  of  in- 
terest in  this  connection  is  that  those  salespeople  costing  8 
and  10  per  cent  were  receiving  the  lowest  salaries.  A  girl 
drawing  10  per  cent  of  her  sales  w^as  getting  $5  per  week 
while  one  drawing  3  per  cent  was  getting  $15  a  week.  The 
opportunities  for  making  sales  were  about  equal  in  both  cases, 
except  that  the  $15  a  week  saleswoman  was  of  such  well 
known  excellence  that  customers  would  wait  for  her  when  she 
was  busy  with  other  customers  rather  than  have  other  sales- 
people attend  to  their  wants.  Nothing  could  demonstrate 
more  clearly  the  difference  between  salespeople  than  such 
facts  as  these.  From  a  business  standpoint,  the  saleswoman 
getting  $15  a  week  was  grossly  underpaid.  She  should  have 
received  at  least  $25  per  week,  while  the  salesperson  who  was 
getting  $5  per  week  was  much  overpaid. 

The  following  average  percentages  of  salaries  to  sales  may 
prove  helpful.^ 


Groceries    7-96% 

Furniture    8.73 

Variety  stores   8.86 

Clothing    9.49 

Dry-goods    9.65 

Hardware    10. 11 

Shoes    10.51 

Drugs    10.93 

Jewelry   10.96 

The  Harvard  retail  shoe  store  investigation   found  that 
salaries  for  the  sales  force  ranged  from  5  to  10.3  per  cent 

^System,  February,   1914. 


148 


ECONOMICS  OF  RETAILING 


of  sales,  that  8  per  cent  was  a  common  figure,  and  that  7  per 
cent  was  a  good  efficient  level  of  expense.^ 

Salaries  of  Salespeople — The  great  industrial  changes 
brought  about  by  the  war  as  well  as  the  rather  unsettled  state 
of  business  conditions  at  the  present  time  render  it  practically 
impossible  to  make  any  accurate  statement  concerning  the  ab- 
solute wages  paid  to  retail  store  employees  througout  the 
country.  During  the  last  few  years,  however,  there  has  been 
a  distinct  rise  in  the  level  of  retail  store  wages,  just  as  in  the 
wage  levels  of  the  various  industries. 

Associations  of  department  store  owners  and  other  re- 
tailers in  various  parts  of  the  country  are  making  a  concerted 
drive  toward  increased  efficiency;  as  a  result  of  this  drive, 
wages,  working  conditions,  and  opportunities  for  advance- 
ment are  all  undergoing  a  constant  improvement. 

The  day  of  the  $3-a-week  .salesgirl  has  passed,  while  the 
retail  store  now  probably  offers  to  the  ambitious  young  man 
as  good  and  as  certain  a  future  as  does  banking,  insurance, 
or  any  other  one  of  a  score  of  profitable  occupations.  This 
truth  is  emphasized  by  the  fact  that  the  retail  stores  are  com- 
ing in,  indirectly,  for  their  share  of  the  benefits  of  the  recently 
enacted  Smith-Hughes  bill,  which  is  a  direct  attempt  to  stimu- 
late and  increase  the  opportunities  for  vocational  training  and 
guidance. 

With  the  minimum  wage  laws  in  many  states  insuring  to 
every  retail  store  employee  at  least  a  living  wage,  and  with  the 
efforts  of  the  employers  themselves  to  train  properly  and  pro- 
mote systematically  every  efficient  employee,  insuring  future 
improvement,  the  general  tendency  of  retail  store  wages  and 
opportunities  may  be  said  to  be  definitely  on  the  up-grade. 

Excepting  as  abnormal  the  wages  paid  to  women  munition 


'Bulletin   of   the   Bureau   of   Business   Research,   Harvard   University,    Number    i, 
May,   1 9 13. 


THE  WAGES  OF  SALESPEOPLE 


149 


workers,  statistics  tend  to  show  that  the  wages  of  women  de- 
partment store  employees  are  higher  than  those  of  women  em- 
ployed in  factories ;  besides,  the  saleswoman  continues  to  draw 
a  higher  and  higher  salary  after  the  factory-employed  woman 
ceases  to  get  any  better  pay.  The  tendency  to  recognize  in 
store  work  the  need  of  special  ability  acquired  through  ex- 
perience is  clearly  evidenced  in  the  increase  in  salaries  in  ac- 
cordance with  the  length  of  time  which  is  spent  in  such  work.* 

General  Wage  Levels — To  a  certain  extent,  it  also  seems 
clear  that  the  limits  of  salary  are  set  by  the  efficiency  of  the 
employee  herself.  The  general  levels  of  wages  for  salespeople 
expressed  in  the  average  percentage  cost  of  selling  are  prob- 
ably fixed  by  forces  beyond  the  control  of  individual  sales- 
people, but  the  amount  of  income  based  upon  such  percentages 
is  largely  dependent  upon  the  skill  of  the  salesperson. 

Methods  of  Wage  Payment.  — Wages  in  retail  stores  are 
usually  paid  on  a  time  basis,  as  for  example,  so  much  per 
week,  or  month ;  on  a  commission  basis,  as  for  example  5  per 
cent  of  total  net  sales;  or  on  a  combination  basis  of  a  certain 
amount  per  week  plus  a  commission  of  a  certain  percentage 
on  all  sales  above  a  given  amount.  While  salespeople's  salaries 
must  always  bear  a  certain  ratio  to  the  sales  made,  still  the 
regular  time  wage  is  widely  used  and  in  many  ways  has  much 
to  commend  it.  A  straight  commission  is  theoretically  the 
ideal  method  of  paying  salespeople,  but  in  most  retail  stores 
is  very  difficult  to  carry  out  properly.  Unless  very  carefully 
established,  it  may  lead  to  much  friction  among  the  employees. 
Some  of  them  are  likely  to  rush  ahead  of  others  in  trying  to 
get  an  opportunity  to  serve  customers ;  others  will  try  to  avoid 
all  other  work,  such  as  care  of  stock,  in  order  that  they  may 

*  "Wage-Earning  Women  in  Stores  and  Factories,"  Vol.  V  in  report  on  condition 
of  Women  and  Child  Wage-Earners  in  the  United  States,  pages  41-48. 


.V 


ISO 


ECONOMICS  OF  RETAILING 


be  ready  for  customers  all  of  the  time.  Customers  with  small 
orders  are  likely  to  be  neglected  for  those  with  large  ones. 
Salespeople  will  try  to  force  the  selling  so  as  to  make  as  many 
sales  as  possible  per  day.  Also,  unless  a  difference  is  made 
in  the  commissions  paid  for  selling  various  goods,  the  sales- 
people are  likely  to  sell  only  the  newest  and  most  desirable 
goods,  leaving  old  stocks  and  '^stickers"  to  accumulate.  Cases 
have  been  known  where  some  of  the  salespeople  actually  hid 
desirable  goods  so  that  other  salespeople  in  the  same  depart- 
ment could  not  make  sales  from  them.  The  results  of  these 
tendencies  are  hurtful,  not  only  to  the  general  spirit  of  the 
store,  but  also  to  the  store's  trade. 

Difficulties  in  Commission  Payments.— It  is  also  a  difficult 
matter  to  adjust  commissions  at  the  proper  level  for  each  of 
the  great  variety  of  goods  handled  by  most  stores.  Not  only 
should  the  commission  be  adjusted  to  the  kind  of  goods,  but  it 
should  also  be  adjusted  to  different  articles  in  some  fair  pro- 
portion to  the  difficulty  of  selling  them.  For  example,  older 
goods,  as  a  rule,  need  higher  commission  rates  than  goods 
just  received;  novelties  need  a  higher  rate  than  staples;  style 
goods  and  goods  requiring  care  and  time  in  fitting  need  higher 
commission  rates  than  goods  that  are  standard  all  of  the  time 
and  which  take  but  little  time  to  sell.  So,  while  the  commis- 
sion rate  is,  theoretically,  the  best  plan  of  remunerating  sales- 
people, it  seems  practicable  only  in  stores  that  are  large  enough 
to  carry  the  division  of  selling  labor  to  a  very  fine  degree. 
When  a  salesperson  sells  nothing  but  handkerchiefs,  for  ex- 
ample, or  hosiery,  or  men's  collars,  a  flat  commission  rate  is 
possible. 

The  combination  of  a  straight  wage  and  a  commission  is 
much  more  generally  used  and  much  more  practicable  for 
most  stores.  Sometimes  a  commission  of  a  certain  percentage, 
say  3  per  cent  or  5  per  cent  of  sales,  is  paid  after  a  certain 


THE  WAGES  OF  SALESPEOPLE 


151 


sales  quota  has  been  reached.  In  some  cases  additional 
amounts  are  added  to  the  wage  in  the  form  of  a  bonus  or 
premium  for  sales  above  a  certain  quota,  for  punctuality,  or 
for  a  high  rating  based  on  a  consideration  of  sales,  freedom 
from  errors,  punctuality,  and  so  on. 

"PM's"  and  "Spiffs."— Still  another  form  of  premium 
commonly  used  is  the  'TM"  or  *'spiff,"  a  special  payment  for 
pushing  stock  that  seems  to  have  developed  ''sticker"  qualities. 
Unseasonable  goods,  and  other  goods  in  any  way  undesirable, 
are  frequently  marked  'TM"  and  the  salesman  succeeding  in 
selling  them  gets  the  stated  ''premium"  or  "spiff."  The 
amount  of  the  'TM"  usually  runs  from  10  cents  up  to  50 
cents  per  article,  depending  upon  the  kind  of  goods.  In 
selling  women's  garments,  a  i  per  cent  "PM"  is  quite  fre- 
quently used. 

Profit-Sharing. — Profit-sharing  is  another  device  for  re- 
munerating salespeople  that  has  been  widely  heralded  as  the 
solution  of  the  wage  question,  but  has  not  yielded  the  results 
generally  hoped  for  by  its  advocates.  With  a  few  firms,  as 
for  example,  'The  Great  Department  Store,"  of  Lewiston, 
Maine,  profit-sharing  has  apparently  proved  very  successful. 

The  methods  used  in  profit-sharing  schemes  vary  con- 
siderably. One  of  them  requires  that,  after  all  expenses  for 
the  year  or  other  period  of  settlement  have  been  paid,  a  certain 
percentage  of  profit,  say  6  per  cent,  be  set  aside  as  the  net 
profit  due  to  the  management.  All  remaining  funds  are  dis- 
tributed among  the  employees.  In  some  instances,  after  ex- 
penses are  paid  the  net  profits  are  divided  among  labor,  capital, 
and  management  in  equal  parts.  In  other  cases,  certain  parts 
of  the  net  profits  are  set  aside  as  provident  funds  to  be  paid 
after  a  term  of  years  in  the  form  either  of  an  old-age  pension, 
or  an  annuity.     In  still  other  cases,  life  insurance  for  em- 


i- 


152 


ECONOMICS  OF  RETAILING 


ployees  is  provided  from  the  net  profits.^  Several  of  these 
features  are  combined  in  some  institutions,  as  for  example  in 
the  great  French  store,  the  Bon  Marche. 

Among  the  American  stores  which  are  carrying  out  a 
plan  of  profit-sharing,  some  pay  a  certain  percentage,  say  5 
per  cent,  of  all  sales  in  excess  of  the  sales  for  the  same  months 
of  the  year  preceding,  while  others  pay  a  straight  percentage, 
say  3  per  cent,  on  all  sales  above  a  certain  point.  These 
methods  obviate  the  necessity  of  making  known  to  the  sales 
force  the  exact  financial  condition  and  net  profits  of  the  con- 
cern. 

The  most  common  method  of  distributing  profits  is  on 
the  basis  of  the  salary  received,  that  is  to  say,  the  salesperson 
whose  salary  is  $12  per  week  gets  twice  as  big  a  share  of  the 
profits  as  the  one  whose  salary  is  $6  per  week.  Some  con- 
cerns distribute  upon  the  basis  of  sales,  and  others  distribute 
in  a  more  or  less  arbitrary  fashion,  thus  hoping  to  equalize  the 
differences,  in  the  conditions  and  the  opportunities  for  making 
sales  of  all  members  working  in  the  .store. 

Another  common  form  of  profit-sharing  is  the  distribution 
of  shares  of  stock  or  other  evidences  of  ownership  to  em- 
ployees, either  upon  favorable  purchasing  terms  or  as  a  reward 
for  faithful  service  Over  a  term  of  years. 


Purposes  of  Premium  Payments. — The  purposes  of  profit- 
sharing,  premium  paying,  and  bonus  granting  are,  first,  to 
get  the  salesman  to  use  his  own  initiative  and  ambition  in  fur- 
thering  the  business  of  the  concern,  and,  second,  to  tie  the 
good  employees  to  the  concern  so  that  they  cannot  be  drawn 
away,  either  into  independent  businesses  of  their  own  or  to 
competitors.  These  purposes  demand  that  the  systems  adopted 
must  be  such  as  to  avoid  such  friction  among  salespeople  as 


*  Adams  and  Sumner,  "Labor  Problems,"  Ch.  IX. 


THE  WAGES  OF  SALESPEOPLE 


153 


straight  commissions  arouse ;  that  the  rewards  must  be  great 
enough  to  awaken  their  interest  and  ambition;  and  that  set- 
tlements should  be  made  frequently  enough  to  keep  the  end 
of  the  period  in  mind  from  the  start,  and  yet  have  it  long 
enough  so  that  the  amount  payable  at  its  end  in  the  form  of 
profit,  shares,  bonuses,  or  premiums  may  seem  worth  while. 
Bonus  and  premium  schemes  apparently  work  best  in  institu- 
tions that  give  every  employee  a  chance  to  earn  something 
extra  besides  a  regular  salary,  and  which  adjust  the  rules  or 
conditions  of  earning  the  bonuses  or  premiums  so  that  those 
who  are  engaged  in  places  in  the  store  unfavorable  to  making 
a  good  showing  are  given  all  due  allowances. 

Premiums  in  the  form  of  PM's  and  spiffs,  prizes  and  com- 
missions for  sales  above  quota  are  usually  paid  weekly,  or 
whenever  the  regular  wage  is  paid.  Profit  shares  and  bonuses 
are  generally  paid  annually  or  semi-annually.  The  argument 
for  the  annual  payment  is  that  in  this  length  of  time  the  shares 
or  bonuses  amount  to  a  good  deal  in  the  case  of  the  best  sales- 
people, and  the  prospect  of  losing  this  arnount  keeps  them  from 
seeking  employment  elsewhere,  at  least  until  after  these  bo- 
nuses have  been  paid.  Such  payments  are  usually  made  at 
about  the  beginning  of  the  calendar  year,  or  just  after  the 
holiday  rush  of  trade. 


Extra-Salary  Remuneration.— In  practice  salespeople  re- 
ceive remuneration  other  than  direct  salaries  in  a  variety  of 
ways.  Discounts  of  from  10  to  20  per  cent  on  merchandise 
purchased  from  the  store  are  granted  by  many  stores.  The 
lower  figure  is  the  most  common.  A  few  stores  allow  no  dis- 
counts at  all,  and  most  stores  give  discounts  to  apply  only  on 
goods  for  the  salesperson's  personal  use.  A  few  stores  add 
the  proviso  that  discounts  shall  apply  only  on  goods  for  per- 
sonal use  or  for  the  use  of  persons  wholly  dependent  upon  the 
salesperson.      Special   discounts   are   usually  given   on   dress 


154 


ECONOMICS  OF  RETAILING 


goods  to  be  used  in  making  uniforms  required  by  stores  for 
their  employees. 

Gifts,  prizes  for  suggestions,  Christmas  presents,  vacations 
on  full  pay,  occasional  banquets,  gymnasium  suits,  musical  in- 
struments for  bands,  books  and  papers  for  the  employees  to 
read,  educational  courses  in  salesmanship,  in  millinery,  in  do- 
mestic science,  in  art,  in  elocution,  in  music,  dancing,  and  for- 
eign languages  are  frequently  supplied  to  employees. 

Under  the  head  of  welfare  work,  large  stores  go  into  a 
great  many  things  of  interest  and  value  to  their  employees. 
Singing  societies,  baseball  clubs,  orchestras,  bands,  theatrical 
societies,  cadet  corps,  athletic  clubs,  literary  societies,  and 
other  organizations  are  established  and  assisted.^ 

Thrift  Plans. — The  larger  stores  encourage  thrift  and  econ- 
omy among  employees  by  means  of  savings  and  loan  associa- 
tions, sick  and  death  benefit  associations,  and  even  by  build- 
ing and  loan  associations.  The  purpose  of  the  savings  and 
loan  association  is  to  -encourage  all  members  to  lay  aside  a 
fixed  sum  of  money  every  pay  day,  and,  in  cases  of  need,  to 
make  loans  to  individual  shareholders  at  reasonable  rates  of 
interest.  By  this  means  the  loan  shark  business,  which  has 
always  obtained  some  patronage  among  retail  salespeople,  is 
materially  reduced. 

Sick  and  Death  Benefit  Associations.— The  sick  and  death 
benefit  associations  collect  regular  dues  from  their  members 
during  earning  periods  and  then  pay  weekly  benefits  in  case 
of  sickness,  and  a  stated  amount  to  the  deceased's  family  in 
case  of  death. 

The  following  tables  indicate  the  amount  of  dues  collected 
and  benefits  paid  by  typical  benefit  associations.  The  general 
rules  governing  membership  follow  each  table. 

•Employers'   Welfare  Work,   Bui.    123,   U.    S.   Bureau  of  Labor   Statistics    (1913). 
Tolman,  W.   H.,   "Social  Engineering,"  pages  48-61    (1909)- 


THE  WAGES  OF  SALESPEOPLE  155 

EsPENHAiN  Employees'  Mutual  Benefit  Association 

Sick 
Class  Salary  Dues  per        Benefits  Death 

per  Week  Month  per  Week  Benefits 

A  $2-$4  IOC  $2.00  $50.00 

B  4-6  20  ,          3.50  50.00 

C  6-9  30  5.00  50.00 

D  9  and  up  40  8.00  50.00 

Membership  is  voluntary  and  granted  upon  written 
application. 

An  employee  must  have  been  a  member  of  the  association 
at  least  30  days  prior  to  his  or  her  sickness  in  order  to  be 
entitled  to  benefits. 

Notice  of  sickness  must  be  made  in  writing  within  three 
days. 

Notice  must  be  accompanied  by  a  physician's  certificate. 

If  illness  continues  for  more  than  one  week,  physician's 
certificate  must  be  for  each  week. 

Benefits  are  not  paid  for  less  than  one  week  nor  more 
than  twelve  weeks  within  a  year. 

Any  person  feigning  sickness  or  disability,  in  order  to 
procure  benefits,  is  expelled  by  the  board  of  directors,  and 
may  not  be  reinstated. 

All  late  and  error  fines  collected  from  all  employees  of 
the  concern  go  into  the  benefit  fund. 

Benefit  funds  are  invested  either  in  first  mortgages, 
bonds,  or  with  a  reliable  bank  or  trust  company. 

The  Wanamaker  Mutual  Insurance  Association 

OF  Philadelphia 

Sick 
Class  Salary  Dues  per         Benefits  Death 

per  Week  Month  per  Week  Benefits 

1st Below  $3  IOC  $1.50  $50.00 

2nd $3-$5  25  2.50  100.00 

3rd 5-7  40  4-00  125.00 

4th  7-10  50  5.00  150.00 

5th   10  and  up  60  6.00  200.00 


156  ECONOMICS  OF  RETAILING 

Membership  is  compulsory.  All  regular  employees  of  the 
firm  shall  be  members  and  eligible  to  benefits. 

No  member  shall  be  eligible  for  benefits  until  after  hav- 
ing been  in  actual  service  three  full  months. 

Benefits  shall  not  be  paid  for  a  period  exceeding  thirteen 
weeks  from  date  of  illness. 

Notice  must  be  sent  to  the  secretary  of  the  association 
within  three  days  of  the  date  of  sickness. 

Only  half  benefits  shall  be  paid  for  the  first  week  of  any 
illness. 

If  dues  do  not  cover  the  necessary  benefits,  special  assess- 
ments may  be  made,  and  regular  dues  may  be  omitted  if 
funds   in  the  treasury  are   sufficient   for  current   needs. 

The  firm  of  John  Wanamaker  will  be  or  shall  appoint  the 
treasurer. 

In  the  development  of  great  movements  of  these  kinds 
the  progressive  department  stores  of  the  country  have  always 
led.  John  Wanamaker  in  his  Philadelphia  and  New  York 
stores,  Marshall  Field  in  Chicago,  and  Wm.  Filene  Sons 
Company  in  Boston  are  well-known  concerns  that  present  the 
highest  type  of  organization  for  the  individual  and  social  bet- 
terment of  employees,  entirely  aside  from  the  regular  work  of 
the  store.  Such  effort  for  the  benefit  of  employees  would  be 
quite  impossible  for  a  small  store. 

Fines. — Coupled  with  the  wage  system  there  is  in  many 
stores  a  system  of  fines  imposed  upon  salespeople  and  other 
employees  for  tardiness,  errors  in  making  out  sales  checks, 
for  breakage,  for  mismatching  goods,  and  so  on.  No  part  of 
the  retail  store  system  has  caused  so  much  ill-will  among  its 
employees  as  the  application  of  fines  in  a  careless  way.  In 
fact,  it  has  seemed  very  difficult  to  assess  fines  in  any  way 
that  did  not  create  trouble  sooner  or  later.  It  is  generally 
reported  that  the  system  is  on  the  wane.^ 

^  Report    of    the    Massachusetts    Commission    on    Minimum    Wage    Boards,    pages 
106-107. 


THE  WAGES  OF  SALESPEOPLE 


157 


The  Social  and  Economic  Side  of  Low  Wages — The  gen- 
erally low  wages  prevailing  in  the  retail  business  have  attracted 
a  great  deal  of  attention  not  only  from  the  standpoint  of  econ- 
omists, social  workers,  and  the  public  at  large,  but  also  from 
thinking  merchants.  The  wages  of  salespeople  are  admittedly 
low,  but  the  supply  of  people  ready  to  go  to  work  in  stores  has 
nearly  always  been  more  than  adequate.  In  consequence  tne 
wages  have  been  pushed  down  to  a  point  at  which  an  adult 
finds  difficulty  in  supporting  himself  or  herself  upon  the 
average  amount  paid.  The  situation  has  been  complicated  by 
the  fact  that  there  have  been  no  standards  of  efficiency,  no 
special  qualifications  or  skill  required  for  entrance  into  the 
business,  and  by  the  employment  of  great  numbers  of  very 
young  people.  Over  two-thirds  of  all  saleswomen  investigated 
by  the  Massachusetts  Minimum  Wage  Board  Commission 
were  under  the  age  of  24  years. 


Women  and  Low  Wages. —  The  employment  of  women 
has  complicated  the  matter  still  more  because  of  the  fact  that 
a  very  large  proportion  of  them,  three- fourths  or  more,  ac- 
cording to  the  reports  of  all  investigators,  live  at  home  or 
with  relatives.  A  large  number  of  these  are  not  required  to 
contribute  to  the  support  of  their  homes,  and  may,  therefore, 
use  their  wages  as  "spending  money."  Some  are  even  partly 
supported  by  other  members  of  the  family,  while  only  com- 
paratively few  help  support  others.  The  general  aver- 
age youthfulness  of  female  workers  shows  that  they  are  drop- 
ping out  of  the  occupation  of  retail  salesmanship  after  a  few 
years*  work  at  the  most.  Work  in  the  store  serves  merely 
to  tide  over  the  period  from  the  time  that  they  reach  sufficient 
maturity  to  be  gainfully  employed  to  the  time  of  marriage. 
These  facts  cause  women,  in  particular,  to  accept  work  of  this 
kind  at  lower  than  living  rates,  and  thus  cause  wages  for  the 
whole  class  of   retail  salespeople  to  fall  to  their  present  low 


158 


ECONOMICS  OF  RETAILING 


levels.  The  general  result  is  a  big  unsettled  problem  for  the 
independent  salesman  or  saleswoman  who  is  supporting  him- 
self or  herself  and  wishes  to  make  a  life-work  of  salesman- 
ship in  retail  stores. 

Unionization  of  Retail  Store  Employees. — In  this  connec- 
tion it  may  be  well  to  note  the  activities  in  the  direction  of 
unionization  of  retail  store  employees.  As  far  back  as  1863, 
there  was  organized  among  women  employed  in  stores  and 
factories  a  society  know^n  as  the  ''Working  Women's  Protec- 
tive Union"  whose  aim  it  was  to  raise  the  wages  of  working 
girls  and  women,  but  more  particularly  to  aid  members  in 
collecting  .sums  due  them  from  employers.  During  the  early 
days  of  woman  labor  in  stores  and  factories  in  this  country, 
considerable  fraud  of  this  kind  was  practiced  and  many  em- 
ployees were  beaten  out  of  their  wages.® 

There  were  regular  unions  among  salespeople  and  for 
salespeople  exclusively  as  early  as  1882.  At  that  time  seven 
local  unions  were  drawn  into  the  big  general  organization 
known  as  the  Knights  of  Labor.  In  1890,  these  withdrew  and 
were  forthwith  united  with  the  American  Federation  of  Labor. 

These  pioneer  early  unions  of  salespeople  were  generally 
called  ''Early  Closing  Societies,"  their  main  object  being 
named  in  the  title.  When  joined  w^ith  the  American  Federa- 
tion of  Labor,  the  name,  "Retail  Clerks'  National  Protective 
Association,"  w^as  adopted,  which  was  later  changed  to  "Re- 
tail Clerks'  International  Protective  Association."® 

The  objects  of  the  "Retail  Clerks'  International  Protec- 
tive Association"  as  expressed  in  its  preamble  are,  to  improve 
the  conditions  of  retail  clerks,  secure  reasonable  compensation, 
oppose  long  hours  and  Sunday  labor,  disseminate  useful  in- 
formation by  means  of  lectures,  pamphlets,  and  other  litera- 


•Hyslop.  J.    H.,  "Shop  Girls  and  Their  Wapes."  Andover  Review,   16:455. 
'Retail  Clerk's  International  Advocate,  September,    1906. 


THE  WAGES  OF  SALESPEOPLE 


159 


ture,  demand  comfortable  seats  for  lady  clerks,  and  equal  pay 
for  equal  work,  oppose  child  labor  and  to  provide  a  benefit 
fund  for  sick,  aged,  and  indigent  retail  clerks. 

In  1906  the  association  had  formulated  its  demands  to  the 
extent  of  requiring  stores  to  employ  only  union  employees, 
to  observe  a  9-hour  working  day  and  a  52-hour  week,  with  pay 
at  one  and  one-half  times  the  regular  rate  for  overtime,  vary- 
ing in  practice,  however,  to  suit  local  conditions,  and  to  settle 
by  arbitration  all  disputes  between  employer  and  employee. 

This  association  has  grown  so  that  it  now  has  locals  in 
nearly  every  important  city  in  the  country.  Since  1891,  it 
has  published  a  monthly  organ,  the  Retail  Clerks*  Interna- 
tional Advocate.  It  has  employed  the  strike  and  boycott  as  a 
means  of  bringing  employers  to  terms;  but  on  the  whole  it 
has  not  been,  and  is  not  now,  apparently,  a  very  strong  union. 


Outside  Help. — Considerable  outside  support  has  always 
been  lent  to  the  organization  of  retail  store  employees  for  the 
purpose  of  bettering  their  condition.  A  great  deal  of  work 
was  done  for  salespeople  before  they  W'Cre  organized,  and  in 
lines  where  organization  has  not  yet  been  effected,  such  as- 
sociations as  the  "Women's  Educational  and  Industrial 
Union"  of  Boston,  an  organization  of  the  same  name  in  Buf- 
falo, and  the  "Protective  Agency  for  Women  and  Children" 
in  Chicago,  have  been  of  material  assistance.  Lately,  the 
"Consumers'  League"  and  the  "Women's  Trade  Union 
League"  have  interested  themselves  a  great  deal  in  better 
conditions  for  store  employees.  These  organizations  have 
even  gone  so  far  as  to  assist  materially  in  efforts  to  get  the 
salespeople  to  organize  into  unions,  and  to  encourage  sales- 
women, particularly,  to  make  demands  for  higher  wages, 
shorter  hours,  seats  back  of  the  counters,  and  other  improved 
working  conditions. 

Unions   among  salespeople   are   well  organized   in   other 


i6o 


ECONOMICS  OF  RETAILING 


countries.  "The  National  Amalgamated  Union  of  Shop  As- 
sistants, Warehousemen,  and  Clerks,"  "The  Amalgamated 
Union  of  Co-operative  Employees,"  and  the  "Irish  Drapers' 
Assistants'  Benefit  and  Protective  Association"  are  well-knov^u 
British  organizations  numbering  thousands  of  members. 

Sources  of  Minimum  Wage  Propaganda. — To  meet  the 
problem  of  low  wages  prevalent  in  retail  stores  the  minimum 
wage  principle  has  been  proposed.  The  suggestion  to  adopt  a 
minimum  wage  has  come  from  three  well-defined  sources,  viz. 

1.  From  progressive,  far-seeing  store  managers.     Even 

before  there  were  any  laws  passed  or  even  sug- 
gested in  this  country  there  were  several  well- 
known  stores  which  had  voluntarily  adopted  mini- 
mum wage  levels. 

2.  From  retail  store  employees,  clerks'  unions,  and  so  on. 

3.  From  social  workers,  economists,  and  legislators  seek- 

ing general  public  legislation  setting  minimum  wage 
levels. 

There  is  far  from  uniformity  of  opinion  among  any  of 
these  classes  favoring  the  minimum  wage  principle.  Many 
retail  stores  and  retailers'  associations  are  opposed.  A  large 
body  of  retail  salespeople  are  undoubtedly  opposed  or  at  least 
indifYerent  to  the  establishment  of  the  minimum  wage.  Trade 
unions,  including  the  American  Federation  of  Labor,  are  luke- 
warm about  it.  Even  economists  and  social  workers  differ 
widely  on  the  subject.  In  spite  of  the  diversity  of  views 
there  has  been  considerable  progress  toward  the  minimum 
wage,  particularly  by  legislation,  since  19 12. 

Minimum  Wage  Legislation. — The  minimum  wage  by 
legislation  originated  in  New  Zealand  and  Australia.  The 
first  act  of  the  kind  was  passed  in  New  Zealand  in   1894. 


THE  WAGES  OF  SALESPEOPLE 


161 


Victoria,  Australia,  came  second  in  1896.     England  passed  a 
comprehensive  minimum  wage  act  in  1909. 

There  followed  a  period  of  increasing  interest  in  this  coun- 
try during  which  a  number  of  commissions  were  appointed 
to  study  the  minimum  wage.  Massachusetts  in  19 12  passed 
the  first  minimum  wage  law,  and  was  followed  in  19 13  by 
eight  other  States.  During  the  next  two  years  more  states 
enacted  similar  laws,  but  during  the  war  there  was  a  slacken- 
ing of  interest.  One  state,  Arizona,  passed  a  law  in  191 7,  and 
the  District  of  Columbia  act  was  passed  in  19 18. 

These  state  laws  were  contested  in  courts  in  several  cases. 
In  a  few  cases  lower  courts  declared  the  minimum  wage  laws 
unconstitutional  but  the  state  supreme  courts  in  every  case 
have  declared  them  legal.  In  one  case,  carried  from  the  State 
Supreme  Court  of  Oregon  to  the  United  States  Supreme  Court 
at  Washington,  the  decision  of  the  Oregon  Supreme  Court 
was  reaffirmed  favoring  the  minimum  wage  law.  The  legal- 
ity of  the  minimum  wage  has  apparently  been  firmly  fixed. 

Operation  of  Minimum  Wage  Laws. — The  laws  so  far 
passed  follow  two  general  methods  in  arriving  at  the  mini- 
mum wage  levels.  In  some  cases,  as  in  Utah,  the  rate  is 
definitely  fixed  and  named  in  the  law  itself.  In  other  cases 
the  fixing  of  the  rates  and  the  administration  of  the  act  is  left 
to  commissions  and  wage  boards  with  instructions  to  fix  the 
minimum  wage  at  points  that  will  give  the  employees  sufficient 
to  cover  the  costs  of  the  essentials  of  living. 

Tlie  second  method,  while  much  more  certain  to  be  right, 
involves  careful  investigation  by  wage  boards  into  standards 
and  costs  of  living  governing  any  business  affected.  Such 
studies  have  been  made  for  several  states.  Since  the  first  of 
these  was  made  in  19 14  it  is  interesting  to  note  that  the  mini- 
mum wage  fixed  at  that  time,  of  $8.71  per  week,  by  a  Massa- 
chusetts wage  board  has  moved  upward  during  the  period 


1 62 


ECONOMICS  OF  RETAILING 


of  the  war  as  fixed  by  other  wage  boards  to  $15.50  in  Wash- 
ington, D.  C,  in  1918,  with  a  wage  of  $12.50  fixed  by  a  state 
board  at  about  the  same  time. 

The  Argument  for  a  Minimum  Wage. — In  this  country,  up 
to  the  present,  minimum  wage  laws  have  been  proposed  only 
for  women  and  children.  It  has  been  felt  that  circumstances 
are  against  the  woman  and  child  employee,  and  that,  when 
left  to  natural  market  operations,  they  are  not  able  to  get 
wages  high  enough  to  support  themselves.  The  arguments 
usually  cited  for  a  legal  minimum  wage  are  as  follows : 

1.  If  wages  are  lower  than  the  cost  of  living,  society 
must  make  up  the  difference  in  some  way  to  the  individual 
— hence  why  not  directly  through  the  wage? 

2.  Less  than  a  living  wage  causes  deterioration  of  the 
individual,  and  therefore  of  society.  Poorly  fed,  poorly 
clothed,  and  poorly  housed  individuals  make  poor  citizens. 

3.  A  better  wage  means  greater  efficiency  and,  to  a  cer- 
tain extent,  at  least,  a  better  and  bigger  product. 

4.  The  strain  of  living  from  hand  to  mouth  is  removed 
from  the  wage-earner,  and  he  or  she  becomes  more  con- 
tented, more  happy,  and,  therefore,  more  efficient. 

5.  A  minimum  wage  eliminates  cut-throat  competition 
among  business  competitors.  It  gives  to  each  more  equal 
opportunity  since  each  must  pay  the  same  minimum  wages. 

6.  Parasitism  will  be  eliminated.  It  is  claimed  by  some 
that  retailing  does  not  bear  its  own  burden  of  expense,  that  it 
must  have  cheap  labor  in  order  that  goods  may  be  sold  to  the 
consumers  as  cheaply  as  at  present.  Raising  the  wages  will, 
therefore,  raise  prices.  Retailing  will  not  then  be  in  a  position 
of  drawing  help,  in  the  form  of  underpaid  lal^or,  that  must  be 
supported  by  other  classes  of  society. 

7.  Finally,  women  and  children,  it  is  claimed,  are  not 
able  to  bargain  on  equal  terms  with  their  employers  for  a 


THE  WAGES  OF  SALESPEOPLE 


163 


living  wage,  and,  consequently,  employers  sometimes  take 
advantage  of  their  weakness  and  pay  them  less  than  their 
services  would  bring  if  properly  marketed. 

Merchants  who  favor  a  minimum  wage  go  further  and 
point  out  that,  as  a  matter  of  expediency,  no  merchant  try- 
ing to  do  a  legitimate  retail  business  should  oppose  it.  The 
tendency  of  the  public  thought  at  the  present  time  seems  to 
be  towards  a  minimum  wage.  To  oppose  this  thought  is  to 
antagonize  the  public  upon  whose  support  the  retail  store  de- 
pends directly  for  existence.  Merchants  favoring  the  plan 
also  hold  that  the  increase  in  wages  will  result  in  a  selection 
of  employees  with  better  care,  and  that  the  unemployment 
of  the  younger  and  inexperienced  classes  will  force  the  public 
to  establish  systems  of  education  to  fit  them  for  the  minimum 
wage.  In  the  long  run  it  is  felt  that  any  increases  made  neces- 
sary in  retail  expenses  because  of  higher  wages  can  and  will 
be  shifted  to  the  consumer. 


The  Argument  Against  a  Minimum  Wage. — The  argu- 
ments commonly  used  against  the  minimum  wage  are  as 
follows : 

1.  The  inefficient  will  not  be  hired  at  all  if  a  wage 
higher  than  they  can  earn  must  be  paid.  Thus  many  people 
will  be  deprived  of  earning  anything,  or  contributing  anything 
to  the  support  of  their  families. 

2.  The  inducement  to  do  better  work  and  to  enter  higher 
classes  of  employment  will  be  lessened.  It  is  felt  that  em- 
ployees will  simply  lean  back  on  the  minimum  wage  and  wait 
for  the  state  to  boost  that  payment  rather  than  work  individ- 
ually for  better  things. 

3.  Stores  depending  for  business  drawn  from  near  the 
boundary  lines  of  states  and  located  in  a  state  where  a  mini- 
mum wage  law  is  put  into  force  will  be  hurt  if  minimum  wage 
laws  are  not  also  put  into  effect  in  the  near-by  states.     In 


164 


ECONOMICS  OF  RETAILING 


Other  words,  stores  so  located  will  lose  business  to  stores  across 
the  line  in  other  states. 

4.  The  minimum  wage  will  tend  to  become  a  maximum. 

5.  *'If  the  state  fixes  a  minimum  wage,  it  is  logically 
bound  to  furnish  employment  at  that  wage." 

There  seems  to  be  no  question  that  as  long  as  there  are 
plenty  of  prospective  salespeople  to  select  from,  the  more  in- 
efficient will  lose  their  positions  under  a  minimum  wage  law, 
if  their  present  wages  are  not  equal  to  the  minimum  proposed. 
But  a  reasonable  administration  of  a  minimum  wage  law — 
a  law  that  permits  reasonable  exceptions,  under  carefully 
worked  out  restrictions — will  provide  special  classifications 
for  such  employees.  One  of  the  results  that  seems  certain  is 
that  the  public  will  then  have  its  attention  called  to  the  neces- 
sity of  adopting  some  form  of  specific  education  for  the  work 
of  retail  selling.  This  would,  in  the  long  run,  be  a  most  de- 
sirable thing,  not  only  for  the  salespeople  themselves,  but  also 
for  the  retailers  and  the  public. 

A  Summary  of  the  Minimum  Wage  Arguments. — That  a 
minimum  wage  will  reduce  initiative  and  ambition  and  that 
the  minimum  will  tend  to  become  the  maximum  are  argu- 
ments that  have  been  used  against  all  min^mums  of  wages 
set  by  trade  unions  for  years.  These  arguments  have  never 
been  clearly  proved  for  any  trade,  and  in  a  business  like  selling 
where  personality  counts  for  so  much,  and  where  the  means 
for  measuring  efficiency  are  so  easy,  it  will  be  much  harder 
to  prove  it  than  for  most  other  lines  of  work. 

It  does  not  appear  clear  that  the  state  must  furnish  em- 
ployment if  it  sets  a  minimum  wage,  any  more  than  that  it 
should  engage  in  making  pure  food  or  drugs  simply  because  it 
passes  a  pure  food  and  drug  act,  or  that  it  must  run  steam 
engines  simply  because  it  fixes  certain  requirements  for  their 
operation.     The  view  represented  by  this  argument  against 


THE  WAGES  OF  SALESPEOPLE 


165 


the  minimum  wage  results  from  confusing  the  function  of 
the  state  as  a  regulative  body,  and  from  not  distinguishing  the 
necessity  for  rules  in  the  conduct  of  business — as  well  as  in 
any  other  social  activity — from  a  participation  in  business  it- 
self. The  state  exists  for  the  purpose  of  protecting  the  rights 
of  all,  and  in  the  performance  of  this  function  it  must  make 
rules  and  enforce  them.  Some  rules  may  be  made  unwisely, 
some  regulation  may  be  unjust  or  unnecessary,  but  such  errors 
do  not  constitute  an  argument  against  the  principle  of  regula- 
tion. 

In  conclusion,  the  standards  for  both  the  wages  and  effi- 
ciency of  retail  salespeople  seem  to  be  tending  upwards.  Both 
are  too  low  at  the  present  time,  but  even  under  the  present 
wage  standards,  based  on  the  usual  percentages  on  sales  for 
salaries,  the  more  efficient  are  able  to  make  fairly  good  wages. 


Practical  Education  for  Salespeople. — This  suggests  the 
possibilities  of  a  practical  education  for  salespeople — taking 
young  people  who  have  been  sufficiently  prepared  in  the  regu- 
lar courses  of  the  schools,  and  giving  them  a  training  directly 
for  the  retail  business.  No  good  reason  has  been  presented 
why  this  sort  of  training  should  not  be  given  through  the  pub- 
lic school  system,  even  as  training  is  given  in  agriculture, 
domestic  science,  and  the  many  mechanical  trades  that  have 
been  introduced.  It  is  to  be  presumed  that  such  educational 
work  will  be  established  in  the  public  school  systems,  and  it 
promises  to  be  the  next  great  step,  both  in  the  field  of  voca- 
tional education,  and  in  the  development  of  more  efficient  re- 
tailing. The  new  ability  that  such  educational  work  would 
give  to  salespeople  would  make  them  earners  of  higher  wages 
at  present  rates,  but  it  is  entirely  likely  that  with  the  increased 
understanding  of  their  business  and  its  functions  involved  in 
such  an  education,  the  army  of  workers  in  the  retail  field 
would  gradually   force  a  somewhat  higher  wage   standard, 


i66 


ECONOMICS  OF  RETAILING 


whether  minimum  wage  standards  were  adopted  by  law  or 
not.  In  any  business  there  should  be  no  question  as  to 
whether  or  not  it  supports  itself  and  pays  its  own  expenses. 
With  an  educated  sales  force  performing  well  its  work  for  the 
public,  and  fully  realizing  the  responsibility  and  importance  to 
the  public  of  this  work,  the  retail  business  will  be  able  to  take 
its  place  among  the  most  honored  and  best  paid  professions. 


Bibliography 

Butler,   E.  B.     Saleswomen  in  Mercantile   Stores.     Baltimore,   1909. 
Clark,'].   B.     Minimum  Wage.     Atlantic  Monthly,    112  :289-97. 
Dry  Goods  Economist,  New  York,  published  a  number  of   articles 

bearing  on  the  minimum  wage  during  1913  and  1914.    Both  sides 

of  the  question  are  presented  from  the  standpoint  of  retailers. 

The   April   3,    191 5    number    contained    a    valuable    summary, 

"Salary  and  Bonus  Systems  for  Salespeople." 
Fourth  Report  of  N.  Y.   State  Factory  Investigating  Commission, 

1915.     Vol.  I.     A  very  excellent  survey  of  views  on  minimum 

wage. 
Kelley,    Florence.     Minimum    Wage    Boards.     Proceedings    of    the 
National   Conference   of   Charities   and   Corrections,   Cleveland. 

1912. 
MacLean,  Annie  M.     Two  Weeks  in  Department  Stores.    American 

Journal  of  Sociology,  4  721. 
Millis,  H.  A.     Some  Aspects  of  the  Minimum  Wage.    Journal  of 

Political  Economy,  22  :  132-59. 
Minimum   Wage   Legislation    in  the   U.    S.   and   Foreign    Countries. 

U.  S.  Bureau  of  Labor  Statistics,  Bulletin  No.  167. 
Neighborhood    Department    Stores    in    Chicago.     U.    S.    Bureau   of 

Labor,  Bulletin  No.  91. 
Perils  of  the  Minimum  Wage,  Century,  84  131 1-3- 
Pigou,   A.   C.     Principle  of  the  Minimum  Wage,     igth  Century,  yy. 

644-58. 
Report  of  the  National  Civic  Federation  on  Conditions  in  Department 

Stores,   1913.     Published  in  the  Federation  Review.    Reviewed 

by  Nation,  July  31,  1913- 
Ryan,  J.     Living  Wage.     Survey,  27  11623-4. 


THE  WAGES  OF  SALESPEOPLE 


167 


Van  Kleeck,  M.  Working  Conditions  in  New  York  Department 
Stores.  Survey,  31  :5o-5i.  Criticism  of  the  report  of  the  Na- 
tional Civic  Federation. 

Wage-Earning  Women  in  Stores  and  Factories.  Vol.  V.  In  Re- 
port of  Conditions  of  Woman  and  Child  Wage-Earners  in  the 
United  States,  1910.     61  st  Congress,  2d  Session,  Document  No. 

645. 
Wages  of  Women  in  Retail  Stores.     In  Report  of  the  Massachusetts 

Commission   on   Minimum   Wage    Boards,    1912,    pages    88-142. 
Webb,  S.     Economic  Theory  of  a  Legal  Minimum  Wage.     Journal 

of  Political  Economy,  20  igyygS. 


LOCATION  AND  RENT 


169 


CHAPTER  XI 

LOCATION  AND  RENT  IN  THE  RETAIL  BUSINESS 

Principles     of     Rent     Applicable  to     Retail     Store 

Locations 

A  Good  Location  Necessary  to  Successful  Selling. — Some 
unknown  person  has  said,  *lf  a  man  makes  even  a  mouse  trap 
better  than  anyone  else,  though  he  build  his  hut  in  the  woods, 
the  world  will  make  a  beaten  track  to  his  door."  Although 
widely  quoted  and  having  the  ring  of  wisdom,  as  a  maxim  of 
practice  the  saying  has  no  value.  There  is  now  scarcely  an 
article  of  commerce  so  necessary,  or  so  fine  in  quality,  as  to 
tempt  the  masses  of  buyers  a  single  step  from  the  regular 
channels  of  trade  without  a  good  deal  of  coaxing.  The  maker 
of  the  "better  mouse  trap"  would  find  it  much  more  to  his 
profit  to  ''build  his  hut"  by  the  traveled  wayside  and  supple- 
ment the  advantages  of  his  location  with  an  attractive  window 
display. 

In  no  branch  of  business  is  location  more  important  than 
in  retailing.  The  oldest  books  on  trade,  as  well  as  the  most 
recent  literature,  emphasize  this  point.  Shopkeepers  and 
traders  have  always  congregated  in  certain  locations  in  popu- 
lous communities.  Where  legal  ordinances  have  not  inter- 
fered, it  is  likely  that  these  locations  have  always  been  the 
points  at  which  the  greatest  possible  amount  of  retail  business 
could  be  transacted.  Every  merchant  of  experience  knows 
something  of  the  comparative  value  of  retail  sites.  The  buyer 
of  a  store  considers  the  vakie  of  the  location  first  of  all.  The 
credit  manager  of  the  wholesale  house  inquires  concernin,:^ 

168 


the  location  of  the  store  whose  owner  seeks  his  department's 
O.  K.  Failure  statistics  show  that  many  bankruptcies  arc 
due  directly  to  poor  location.  If  figures  could  be  given  show- 
ing the  number  of  cases  in  which  a  bad  location  was  a  con- 
tributing cause  to  failure,  there  is  no  doubt  but  that  they  would 
run  extremely  high.  Any  study  of  retailing  must  take  loca- 
tion into  consideration. 

Rent  Defined  and  Classified.— Rent  is  the  payment  that  the 
retailer  makes  for  his  location  and  for  the  use  of  the  buildings 
and  improvements  there  may  be  thereon.  It  matters  not  if  he 
owns  his  store  and  the  land  that  it  is  built  upon,  for  in  this 
case  much  of  the  rent  that  he  would  otherwise  pay  is  paid 
out  in  taxes  and  other  expenses. 

Rent,  as  the  term  is  generally  used,  is  made  up  of  two 
parts — building  rent  and  ground  rent.  Building  rent  com- 
monly covers  a  number  of  items  such  as  up-keep  or  deprecia- 
tion charges,  taxes  on  the  building  and  improvements,  insur- 
ance, and  real  estate  brokers'  or  rental  agencies'  commissions, 
together  with  any  other  charges  paid  by  the  landlord  for  the 
tenant,  such  as  janitor  s  services,  w^ater,  light,  heat,  power,  and 
elevator  service.  What  remains  of  the  building  rent  after 
these  charges  have  been  paid  is  generally  looked  upon  as  the 
interest  or  return  upon  the  money  invested  in  putting  up  the 
building  and  making  the  improvements.  Rarely  is  it  more 
than  the  average  interest  rate  on  funds  offered  in  the  open 
markets.  Ground  rent  is  the  payment  made  by  a  retailer  for 
the  space  his  store  stands  on.  But  the  value  of  this  space  de- 
pends almost  entirely  upon  its  location.  Hence  it  is  virtually 
true  that  ground  rent  is  the  retailer's  payment  for  location. 

Distinction  between  Building  and  Ground  Rent. — The 
distinction  between  building  rent  and  ground  rent  is  reco<^- 
nized  by  many  business  men  in  their  accounts  and  records.     In 


170 


ECONOMICS  OF  RETAILING 


LOCATION  AND  RENT 


171 


II 


England  it  has  long  been  customary,  especially  in  the  larger 
cities,  for  landlords  to  lease  unimproved  city  lands  for  long 
periods  to  merchants  and  others  who  put  up  their  own  build- 
ings, but  who  pay  rent  for  the  use  of  the  land.  This  custom 
seems  to  be  on  the  increase  in  the  larger  cities  of  this  country. 
In  these  cases  the  distinction  is  kept  clear  in  practice.  Some 
states  and  municipalities  require  separate  assessment  of  land 
and  improvements  for  purposes  of  taxation.  Tax  reformers 
of  the  Henry  George  type  accept  this  division  as  fundamental. 
Courts  frequently  cause  land  and  improvements  to  be  valued 
separately  in  condemnation  proceedings. 

Clear  thinking  demands  that  the  same  distinction  be  made 
in  any  discussion  of  retail  rents.     It  is  unfortunate,  however, 
that  nearly  all   statistics  that  are  available,   such  as  figures 
drawn  from  retailers'  accounts  on  the  costs  of  doing  business, 
lump  building  rent  and  ground  rent  together.     What  part 
should  be  assigned  to  each  is  impossible  to  tell.     There  is  a 
rule  among  some  real  estate  men  that  may  serve  as  a  guide  to 
a  rough  approximation.     This  rule  is  that  the  amount  invested 
in  buildings  and  other  improvements  for  retail  purposes  should 
be  about  equal  to  the  value  of  the  ground.^     Since  the  ground 
value  is  normally  the  capitalized  value  of  the  rental,  the  re- 
turns to  the  ground  and  the  improvements,  at  least  while  the 
latter  are  new,  will  be  about  equal.     For  example,  if  the  net 
rental  of  a  certain  retail  store  amounts  to  2  per  cent  of  the 
sales,  one  may  roughly  estimate  that  i  per  cent  goes  to  the 
buildings  and  improvements  and  the  other  i  per  cent  to  the 
ground.     This  rule  is  only  an  approximation  and  plenty  of 
exceptions  may  be  found.     It  is  representative  of  the  average 
rather  than  the  actual  in  any  particular  case. 

Amount  of  Rent  Paid.— The  amount  of  rent  paid  for  the 
location  depends  upon  its  comparative  desirability.     In  a  town 

iHurd.  'Trirciples  of  City  Land  Values." 


where  all  locations  are  equally  good  for  retail  store  purposes, 
and  where  there  are  more  locations  offered  than  can  be  used, 
the  rent  for  any  one  location  will  naturally  be  low,  probably 
not  more  than  would  be  paid  for  similar  property  used  for 
residence  purposes.  Such  a  condition  is  rarely  the  case,  how- 
ever, except  in  small  country  villages  having  no  special  fea; 
tures  causing  a  concentration  of  the  retail  business  at  any  given 
point.  Where  there  exists  a  considerable  difference  in  de-, 
sirability,  and  where  there  is  competition  for  the  more  de-| 
sirable  locations,  the  rents  will  tend  to  vary  with  the  desir- 
ability. The  more  desirable  the  location  is,  the  higher  its 
rent  will  be.  In  other  words,  ground  rent,  in  the  retail  busi- 
ness, is  paid  for  comoarative  advantages  in  location. 

An  Illustration. — To  illustrate,  let  us  assume  that  a  mer- 
chant has  under  consideration  two  locations,  one  in  which  he 
can  make  sales  amounting  to  $24,000  a  year,  and  the  other 
in  which  he  can  make  sales  amounting  to  $30,000  a  year  on 
the  same  capital  investment.  Eliminating  all  other  possible 
differences  between  the  two  locations,  let  us  assume  that  the 
sales  in  both  cases  will  yield  a  gross  profit  or  margin  of  33-1/3 
per  cent  and  that  the  expenses  in  each  case,  excepting  the 
rent  item,  amount  to  23  per  cent  of  the  sales.  Tlie  net  margin 
to  cover  rent  and  net  profits  would  thus  be  10- 1/3  per  cent  in 
each  case,  or  $2,480  for  the  first  location  and  $3,100  for  the 
second.  If  both  locations  could  be  procured  at  the  same  rent, 
say  $40  a  month,  or  $480  a  year,  the  difference  in  favor  of  the 
second  location  becomes  evident,  amounting  to  $620. 

But  the  owner  of  the  second  location,  if  he  knows  the 
value  of  his  property,  will  want  more  than  $480  per  year. 
He  may  say  to  the  merchant,  "My  location  will  bring  you  an 
increase  of  $6,000,  or  25  per  cent  more  business  than  the 
other  one.  I  must,  therefore,  have  25  per  cent  more  rent  for 
my  location.     Instead  of  $480,  I  must  have  $600  per  year." 


172 


ECONOMICS  OF  RETAILING 


Reducing  these  figures  to  percentages  of  the  sales  in  each  case, 
it  will  be  seen  that  $480  is  2  per  cent  of  the  sales  at  the  first 
location,  and  that  $600  is  2  per  cent  of  the  sales  at  the  second 
location.  In  other  words,  in  raising  the  rent  of  the  second  lo- 
cation from  $480  to  $600  per  year,  the  landlord  is  only  keep- 
ing his  rent  in  the  same  proportion  to  .sales  as  exists  for  the 
first  location.  It  is  practically  certain  that  under  the  circum- 
stances the  landlord  would  be  able  to  get  at  least  this  amount 
of  rent. 

But  the  merchant  tenant  will  still  find  the  second  location 
more  desirable  than  the  first.  The  gross  margin  in  each  case, 
it  will  be  recalled,  is  33  1/3  per  cent  and  the  expenses  of  doing 
business  amount  to  2t^  per  cent  plus  2  per  cent  for  rent,  or  25 
per  cent  of  sales.  This  leaves  a  margin  of  8  1/3  per  cent  net 
profit  in  each  case.  Now  81/3  per  cent  of  $30,000,  or  $2,- 
500,  is  $500  more  than  81/3  per  cent  of  $24,000,  or  $2,000. 
Thus  $500  is  the  measure  of  desirability  in  favor  of  the 
second  location. 

In  the  bargaining  process  between  the  merchant  and  his 
landlord,  especially  if  there  are  other  merchants  competing 
for  the  same  location,  the  $500  surplus  just  indicated  will  be  an 
object  of  serious  interest.  Some  one  of  the  merchants  is 
likely  to  offer  more  than  $600  a  year  for  the  location,  thus 
virtually  offering  to  divide  this  $500  surplus  profit  with  the 
landlord.  In  the  competitive  bidding  that  we  are  assuming 
to  follow,  the  landlord  finally  closes  with  the  merchant  who 
offers  to  give  him  the  greatest  portion  of  it. 

Under  most  circumstances,  the  landlord  will  not  be  able 
to  get  all  of  it,  although  that  outcome  is  not  impossible.  As 
the  rent  is  fixed  at  a  higher  and  higher  figure,  the  interest  of 
the  merchants  begins  to  wane,  certainly  while  locations  of  the 
first  kind  yielding  net  profits  of  $2,000  per  year  are  available. 
It  is  the  surplus  above  $2,000  that  attracts  their  bidding.  If 
no  surplus  is  possible,  the  merchants  will  stick  to  the  other 


LOCATION  AND  RENT 


173 


locations.  The  landlord  may  possibly  gtt  $300  surplus,  thus 
leaving  $200  for  the  tenant.  In  this  case  the  total  rent  would 
be  $900  a  year,  3  per  cent  of  the  sales.  Thus  on  passing  from 
poorer  to  better  retail  locations  the  proportion  of  rent  to  sales 
tends  to  increase. 

Managerial  Ability,  a  Factor  in  Higher  Prices. — There 
is  another  reason  why  rents  tend  to  be  higher  for  the  be^er 
locations,  not  only  absolutely,  but  also  relatively  to  sale.  Tlie 
competition  among  the  retail  .store  managers  of  a  town  is 
generally  very  keen,  and  the  best  locations,  as  noted  above, 
naturally  go  to  the  highest  bidders.  While  mistakes  often  re- 
sult from  such  competitive  bidding  and  store  managers  some- 
times find  themselves  unable  to  pay  the  high  rents  agreed  upon 
and  succeed,  still,  in  the  long  run,  the  highest  bidder  is  likely 
to  be  the  one  who  can  make  the  most  out  of  the  property. 
There  are  probably  as  great  differences  in  the  managerial 
ability  of  merchants  as  there  are  differences  in  desirability  of 
locations.  The  mo,st  efficient  manager  is  the  one  who  can 
make  a  location  yield  the  greatest  amount  of  profit.  Hence 
the  most  efficient  manager,  other  things  being  equal,  is  the  one 
who  is  able  to  bid  the  most  for  the  location. 

In  thus  bidding  against  each  other  for  good  locations, 
store  managers  are  likely  to  give  to  the  landlord  a  share  of 
the  total  profit  which  might  properly  be  attributed  to  the 
superior  efficiency  of  the  manager. 

Take  the  case  of  the  second  location  referred  to  in  the  illus- 
tration used.  It  was  assumed  that  the  merchant  could  make 
a  gross  profit  of  33  1/3  per  cent  and  a  net  profit  of  8  1/3  per 
cent  on  his  sales.  Now,  let  a  more  efficient  manager  appear, 
one  able  to  cut  the  selling  expense  from  25  per  cent  to  20  per 
cent  of  sales,  or  one  able  to  buy  the  same  goods  at  from  5 
to  10  per  cent  lower  prices,  or  one  able  to  increase  the  amount 
of  the  sales,  and  it  becomes  evident,  other  things  remaining  the 


174 


ECONOMICS  OF  RETAILING 


same,  that  such  a  manager  will  be  able  to  clear  more  than  81/3 
per  cent  profit  on  his  sales.  Now,  if  the  number  of  locations 
where  such  efficiency  can  be  exercised  is  limited,  and  if  two  or 
more  store  managers  of  unusual  ability  should  be  found  in 
competition  for  the  same  location,  it  is  almost  certain  that  the 
landlord  will  be  able  to  get  as  rent  more  than  2  per  cent  of  the 
sales,  the  amount  received  by  the  owner  of  the  poorer  location. 

Competition — An  Illustration. — Suppose  three  merchants, 
Smith,  Brown,  and  Jones,  to  be  in  competition  for  the  place. 
Let  us  assume  that  Smith  is  a  manager  of  good  average  ability 
and  that,  therefore,  he  is  able  to  clear  $2,500  annually  on  the 
location,  when  the  rent  is  $600  per  year.  Brown  is  a  more 
skilful  manager  and  is  able  to  make  $2,800  annually  after  pay- 
ing the  rent.  Jones,  let  us  say,  is  the  most  efficient  of  the 
three.  He  is  able  to  make  $3,000  a  year  in  the  desired  loca- 
tion. Smith  feels  that  he  cannot  afford  to  pay  more  than  $600 
per  year  for  rent,  and  makes  that  as  his  bid  for  the  place. 
Both  Brown  and  Jones  are  willing  to  pay  more  if  necessary. 
Since  all  three  desire  the  place,  the  bids  of  Brown  and  Jones 
soon  pass  the  $600  mark  and  Smith  drops  out.  Brown  con- 
tinues his  bidding  up  to  $900  a  year  for  the  place.  At  this 
point  he  finds  that  it  will  be  unprofitable  for  him  to  go 
further,  that  other  locations  offer  equal  opportunities  for  him. 
Jones,  the  most  efficient  of  the  three,  makes  his  bid  just  a  trifle 
higher,  say  $901,  and  then  Brown  drops  out.  The  outcome 
is  that  the  landlord  receives  $301  more  rent  than  he  would 
have  received  if  none  other  than  merchants  of  average  ability, 
such  as  Smith,  had  offered  to  take  the  place.  Through  Jones' 
superior  talents  as  a  store  manager  the  location  is  made  to 
yield  $500  more  than  Smith  or  any  other  average  merchant 
could  have  obtained  from  it.  Because  of  the  competition  of 
other  efficient  men  like  Brown,  the  landlord  is  able  to  collect 
$301  out  of  that  $500,  leaving  $199  to  Jones. 


LOCATION  AND  RENT 


175 


It  thus  seems  that  the  business  system  is  so  contrived  as 
to  deprive  the  most  efficient  men  of  at  least  a  part  of  the 
special  product  of  their  efficiency,  and  that  this  product  is 
absorbed  in  the  rent  for  location.  To  this  the  land-owning 
class  would  reply  that  the  additional  product  is  as  much  the 
result  of  the  good  location  as  of  the  superior  man,  and  that 
the  superior  man  would  never  have  been  able  to  demonstrate 
his  special  talents  were  it  not  for  the  superior  location.  As  to 
the  merits  of  this  controversy,  nothing  further  need  be  said, 
except  to  point  out  that  product  is  everywhere  the  result  of 
the  economic  combination  of  three  things,  land,  labor,  and 
capital,  and  that  since  all  three  are  absolutely  essential,  it  is 
a  most  difficult,  if  not  impossible,  task  to  assign  any  exact 
measure  to  the  contributions  of  each,  or  to  estimate  definitely 
the  exact  product  specifically  attributable  to  each. 


Plan  of  Economists. —  The  method  proposed  by  most  econ- 
omists in  their  analyses  of  production,  and  followed  largely  in 
business  practice,  in  determining  the  share  of  each  factor, 
is  to  take  for  consideration  a  going  concern  using  fairly  well 
proportioned  amounts  of  labor,  capital,  and  land.  The  total 
product  of  the  concern  is  first  determined  for  a  definite  period 
of  time.  Next,  a  unit  of  one  or  another  of  the  factors  is 
added  to  the  concern,  say  another  average  laborer,  another 
$100  in  capital  in  the  form  of  fixtures,  or  in  stock,  or  in  any 
other  form,  or  a  few  more  feet  of  land  if  that  be  possible. 
Presumably  there  will  be  an  increase  in  the  total  product  of 
the  concern.  This  increase  is  credited  to  the  new  unit  added, 
and  is  said  to  be  the  product  attributable  to  that  unit.  It  is 
assumed  that  this  unit  of  land,  labor,  or  capital  is  like  any 
other  unit  of  land,  labor,  or  capital  already  used  by  the  con- 
cern, since  it  .may  be  exchanged  for,  or  put  in  the  place  of, 
any  other  unit.  Hence  the  product  of  any  unit  of  capital 
already  used  by  the  concern  is  assumed  reasonably  to  be  the 


176 


ECONOMICS  OF  RETAILING 


same  as  that  of  the  unit  of  capital  last  added,  or  the  product 
of  any  laborer  already  employed  is  assumed  to  be  the  same 
as  that  of  the  laborer  last  added.  Multiplying  the  number  of 
units  of  any  factor  by  the  product  thus  found  for  one  unit, 
the  result  is  taken  as  that  part  of  the  whole  product  caused  by 
that  factor.  Thus  the  product  of  all  the  labor  employed  is 
equal  to  the  product  of  any  one  man  employed  multiplied  by 
the  number  of  laborers.  In  the  same  way  the  products  for 
capital  and  land  are  found. 

Faults  of  Economists'  Theory. — The  only  trouble  with  this 
theory  is  that  the  sum  of  the  products  thus  found  is  not  at  all 
likely  to  be  equal  to  the  total  product  of  the  going  concern. 
In  the  case  of  all  successful  concerns,  the  total  product  will  be 
greater  than  the  sum  of  the  products  of  the  three  factors. 
How  this  surplus  is  treated  we  shall  soon  see. 

In  the  division  of  the  product,  or  the  proceeds  of  the 
product,  each  factor  tends  to  get  as  its  remuneration  the  part 
or  share  determined  as  above.  For  example,  the  market  rate 
of  labor  tends  to  equal  the  value  of  that  amount  of  product 
which  one  laborer  can  add  to  the  total  product  of  the  concern. 
The  interest  rate  for  capital  tends  to  equal  the  value  of  that 
amount  of  product  which  one  unit  of  capital,  say  $100,  can 
add  if  put  to  use  in  the  concern.  It  is  a  little  harder  to  illus- 
trate the  principle  with  land,  as  used  for  retail  purposes,  al- 
though the  principle  is  just  as  effective.  We  may  say,  the- 
oretically, that  the  rent  per  front  foot  tends  to  equal  the  value 
of  that  amount  of  product  which  one  unit  of  land,  say  one 
front  foot  a  hundred  feet  deep,  can  add  if  put  to  use. 

This  method  of  determining  the  productivity  of  each  factor 
has  practical  advantages  for  the  manager  of  the  business.  By 
such  measurements  the  manager  can  tell  whether  his  pay-roll 
is  high  or  low,  whether  his  outgo  for  interest  is  high  or  low, 
and  whether  his  rent  is  proportional  to  market  rates  or  not. 


LOCATION  AND  RENT 


177 


Rents  Not  Controlled  by  Average  Business  man. — In  ac- 
tual practice,  the  average  business  man  has  but  little  to  say 
about  what  the  market  rates  for  wages,  interest,  and  rents 
shall  be,  but  taking  the  market  rates  as  they  are,  the  business 
man  combines  land,  labor,  and  capital  in  such  proportions  as 
will  yield  him  the  greatest  return.  If  the  market  rate  for  land 
is  high,  it  may  pay  him  to  invest  in  building  an  upper  story. 
If  land  is  low,  he  may  expend  capital  in  building  his  store 
over  more  ground  space.  If  labor  is  high,  he  may  employ 
less  of  it  in  the  store,  by  installing  automatic  machines  of 
various  kinds,  open  display  fixtures,  arrangements  whereby 
goods  sell  themselves,  and  so  on.  If  capital  or  money  is  rela- 
tively high  in  interest,  he  may  economize  in  fixtures  and  equip- 
ment, and  use  more  labor  instead.  Thus  the  business  man 
takes  on  more  labor,  or  more  capital,  or  more  land  as  long  as 
he  can  make  something  over  the  amount  that  he  must  pay 
out  for  its  use.  He  will  stop  adding  units  of  any  factor  as 
soon  as  the  product  no  more  than  equals  the  outlay. 

The  surplus  that  remains  after  wages,  interest,  and  rent 
have  been  paid,  is  considered  the  profit  of  the  concern.  By 
some  economists  it  is  further  classified  as  the  wages  or  the 
profits  of  good  management,  and  pure  or  chance  profit. 

Increase  in  Cost  of  Doing  Business. — So  far,  we  have  com- 
pared locations  of  different  degrees  of  desirability.  It  is  evident 
that  a  location  may  change  in  desirability  with  the  passing  of 
time;  hence  we  may  compare  the  relation  of  the  rent  to  the 
earning  power  of  the  same  location  at  different  times.  One 
of  the  most  common  explanations  for  the  rise  in  the  costs  of 
doing  a  retail  business  during  the  last  fifteen  years  is  that 
rents  have  gone  up.  In  support  of  this  view  one  writer^ 
gives  figures  from  a  small  department  store  in  a  town  of  about 


Wheeler  Sammons,  "Keeping  Ahead  of  Rising  Costs,"  Sy^f em,  December   13,  1914. 


\ 


178 


ECONOMICS  OF  RETAILING 


25,000  population  which  show  that  rent  equalled  1.9  per  cent 
of  the  sales  in  1883,  and  3.2  per  cent  of  .sales  in  1913.  An- 
other writer^  states  that  the  average  rental  for  shoe  stores 
has  gone  up  from  1.86  per  cent  of  sales  to  2.6  per  cent  in  the 
last  fifteen  years.  Another  report  indicates  that  retail  rents 
in  Massachusetts  were  from  30  to  40  per  cent  higher  in  19 10 
than  they  were  in  1897;  and  that  wholesale  store  rents  had 
gone  up  from  10  per  cent  to  15  per  cent  of  sales  in  the  same 
time/  Similar  observations  were  made  by  the  U.  S.  Bureau 
of  Labor/  Note  that  these  increases  are  not  proportional  to 
sales,  that  is,  rents  have  increased  faster  than  sales. 

Reasons  for  High  Rents.— Two  sets  of  causes  are  already 
discernible,  both  of  which  must  be  taken  into  account  in  ex- 
plaining these  increases  in  rents.  In  the  first  place,  part  of 
the  increase  is  due,  not  to  increase  in  ground  value,  but  to 
building  costs.  Cost  of  building  construction  is  much  higher 
now  than  it  was  even  a  few  years  ago.  Such  increases  in 
costs  must  be  met  in  the  investment  and  must  be  covered  by  a 
higher  return.  Better  store  buildings,  fixtures,  fronts,  win- 
dows, and  so  on,  are  required  today  than  ever  before.  But 
these  improvements  have  meant  additional  outlays  that  must 
be  compensated  for  by  the  merchant-tenant  who  uses  the  store. 
The  items,  interest,  and  up-keep  on  a  higher  investment  due  to 
higher  building  costs,  and  interest  and  upkeep  on  a  more 
expensive  equipment,  certainly  account  for  a  large  part  of  the 
increase  in  total  rent  noted  by  business  men  everywhere. 

Rise  of  Ground  Rents. — Another  explanation  for  the  in- 
crease in  retail  rents  during  the  last  fifteen  years  is  that  the 


'Flint  Garrison,   in   the   Dryffoodsman,   November    i6,    191 2. 
•*  Report  of  the   Mass.   Cost   of   Living  Comm.,   pages   ijS-Q* 
=  Bulletin  of  the  U.  S.     Lab.   Statistics,  No.    130,  page  63. 


LOCATION  AND  RENT 


179 


ground  rents  have  been  rising.  In  the  period  previous  to  this, 
many  towns  came  into  existence  in  this  country  and  small 
towns  have  grown  into  large  towns.  In  general,  a  large  part 
of  the  country,  in  this  period  of  time,  emerged  from  frontier 
conditions.  Locations  that  were  comparatively  new  have  be- 
come old.  But  a  retail  location  used  continuously,  especially 
if  managed  in  a  way  satisfactory  to  the  public,  naturally  draws 
an  increasing  trade.  As  the  trade  increases,  the  location  is 
said  to  improve.  This  improvement  may  be  due  to  the  ac- 
tive business  methods  of  the  store  manager,  but  whatever  of 
such  ''good-will"  remains  permanently  inheres  in  the  location 
and  not  in  the  manager.  There  is  an  old  law  among  dealers 
that  "steady  improvements  in  a  retail  business  follow  the  stand 
and  not  the  man."  A  merchant  may  sell  out  and  move  across 
the  street,  but  many  of  his  customers  will  continue  to  trade  at 
the  old  location  if  the  service  remains  the  same.  Thus,  as 
the  cultivation  of  the  trade  at  a  given  location  proceeds,  the 
value  of  the  location  is  enhanced. 

As  the  trade  at  any  location  increases,  the  possibility  of 
making  a  larger  profit  increases,  and  the  best  locations  in  a 
town  are  nearly  always  those  that  have  been  cultivated  by  a 
good  business  manager  for  some  time.  As  the  desirability  of 
a  location  increases,  the  competition  for  it  grows  keener,  with 
the  result  that  the  rent  that  will  be  offered  and  paid  to  the  land- 
lord will  not  only  increase  as  the  sales  increase,  but  will  tend 
to  do  so  somewhat  faster.  Thus  the  same  forces  which  op- 
erate to  fix  relative  rents  over  poorer  and  better  locations, 
at  the  same  time  operate  to  fix  relative  rents  for  the  same 
location  as  it  grows  better  with  time. 

Counterbalancing  Forces. — ^To  a  certain  extent,  the  in- 
creases in  rent  due  to  some  locations  becoming  more  desirable 
are  counterbalanced  by  the  decreases  due  to  other  locations 
becoming  less  desirable.     It  is  doubtful  if  in  this  country  the 


i8o 


ECONOMICS  OF  RETAILING 


counterbalancing  effect  equals  the  tendency  to  increase. 
Population  has  been  increasing  rapidly,  earning  power  per 
capita  has  gone  up  and  the  amount  of  retail  business  has  been 
on  the  up  grade  for  several  years.  Statistics  are  not  available 
to  show  clearly  whether  the  number  of  stores  in  the  country 
has  kept  at  even  proportion  to  population  and  to  consumption 
of  goods  during  this  time  or  not.  But  census  figures  do  show 
great  increases  in  urban  population,  particularly  in  the  larger 
centers,  and  also  that  great  numbers  of  small  towns  and  vil- 
lages are  losing  ground.  Now,  it  is  in  the  larger  cities  that  the 
climbing  tendencies  of  retail  rents  are  most  evident,  and  the 
increases  in  population  that  have  taken  place  in  such  places 
may  reasonably  be  taken  as  a  cause  of  the  active  operation  of 
the  rent  tendencies  above  noted.  The  retrograde  movement 
in  the  .small  towns  w'ould  make  but  little  difference  in  the 
general  rent  tendencies  as  expressed  in  percentages  of  sales, 
for  in  such  towns  the  rent  percentages  have  always  been  and 
are  now  low. 

Percentage  of  Rent  to  Sales. — That  the  percentage  of  rent 
to  sales  increases  as  the  location  improves  is  the  testimony  of 
many  people.  The  following  quotations  will  serve  to  present 
the  typical  view: 

*'The  question  of  taking  a  lease  of  such  premises  will  be  a 
most  important  one.  If  the  premises  are  in  a  growing  neigh- 
borhood, and  a  shop  is  taken  with  no  lease,  or  merely  an  agree- 
ment for  two  or  three  years,  the  tenant  will  be  at  the  mercy 
of  his  landlord  at  the  expiration  of  that  time." 

"Should  the  business  increase  and  become  a  success,  the 
landlord  will  most  likely  require  a  substantial  increase  in  the 
rental."' 

The  retailer  must  also  reckon  with  "3.  rental  that  has  a 


'  Richard  Beynon,  "Drapery  and  Drapers'  Accounts,"  pages  i6o-i6i. 


LOCATION  AND  RENT 


181 


yearly     probability    of    increase  as    he    builds    up    a    trade. 
His  landlord  is  a  ready  partner  in  his  profits." 

"I  am  impressed  by  the  fact  that  the  popularity  of  the 
cry  for  leasehold  reform  is  greatly  due  to  the  general  convic- 
tion that  the  shopkeepers  and  small  tradesfolk  are  systema- 
tically despoiled  by  the  landlord  whenever  a  lease  falls  in. 
The  freeholder  or  a  long-lessee  lets  a  foothold  in  the  busi- 
ness life  of  London  to  an  industrious  and  enterprising  trader — 
a  butcher,  a  photographer,  a  grocer,  a  printer,  a  draper,  what 
you  will.  The  working  occupier  gets  a  lease  for  a  few  years, 
puts  in  what  needful  capital  he  can  raise,  spends  freely  his 
own  time  and  brains  and  makes  a  business,  but  that  business  is 
often  wholly  and  always  partially  annexed  to  the  spot  where 
it  is  made.  Tliere  are  not  a  dozen  bakers  in  London  who 
would  not  pay  a  heavy  fine  rather  than  move  a  mile.  There- 
fore, you  have  him  in  a  trap.  Some  security  you  must  offer 
him,  or  he  will  not  put  his  money  down,  but  the  competition  is 
keen  and  he  will  take  a  wonderfully  short  tenure.  That  done, 
you  watch  his  business  with  affectionate  interest,  for  you  will 
skim  the  cream  off  by  and.  by.  Knowing  that  he  cannot  leave 
without  a  loss,  of  say,  1,000  pounds,  you  will  fine  him  900 
pounds  for  your  leave  to  stay.  You  first  charge  him  for 
dilapidation,  so  called,  then  you  lay  on  a  rent,  probably  be- 
yond what  another  man  would  give  you;  then  you  ask  a  fine, 
in  cash,  or  in  the  form  of  building  improvements,  remember- 
ing all  the  while  that  amazing  axiom  of  the  law,  that  whatever 
of  his  property  he  affixes  to  the  soil  forthwith  belongs  to 


"8 


you. 

''By  the  leasehold  system  the  landlord  is  not  content  with 
taking  the  house  that  he  did  not  build ;  he  also  takes  the  good- 
will of  the  trade  attached  to  the  house,  and,  on  renewing  a 
lease,  extorts  a  heavy  payment  for  allowing  the  tenant  to  con- 

Sullivan,  "Markets  for  the  People,"  page  45. 
^^       *  B.  F.  C.  Costelloe,  a  member  of  the  London  County  Council,  quoted  in  Dawson's 
'Unearned  Increment,"  page  40. 


l82 


ECONOMICS  OF  RETAILING 


tinue  to  enjoy  his  own  business  which  he  has  brought  to  the 
house,  under  the  hard  penalty  of  being  turned  out  of  the  house 
altogether.  .  .  .  It  is  also  cant  to  talk  about  freedom  of 
contracts,  for  the  tenant  would  be  ruined  if  he  did  not  submit 
to  his  landlord's  terms."* 

Relative  Increase  of  Rents.— That  rents  in  the  retail  busi- 
ness do  actually  show  a  tendency  to  increase,  not  only  abso- 
lutely but  relatively  as  well,  on  passing  from  poorer  to  better 
locations,  or  for  the  same  location  as  it  becomes  more  desir- 
able over  a  period  of  time,  seems  to  be  borne  out  by  such 
figures  as  are  available  on  the  subject.  It  is  unsafe  to  form 
any  hard  and  fast  generalization,  however,  for  the  reason 
that  so  few  figures  are  to  be  had.  Later  statistics  may  show 
other  and  different  tendencies  at  work  more  powerful  than 
those  that  have  been  indicated  above. 
I  One  writer  states  that  the  average  rent  for  most  small 
stores  is  about  2^2  per  cent  of  sales,  but  that  in  large  city 
stores  it  reaches  10  per  cent.^°  Elsewhere  the  statement  is 
/made  that  rents  average  2  per  cent  in  country  stores,  4  per 
cent  in  small  city  stores,  and  from  4  per  cent  to  7  per  cent 
for  department  stores.^^  In  reply  to  an  inquiry  upon  this 
point  directed  to  C.  C.  Parlin,^^  who  has  made  an  extensive 
study  of  the  costs  of  doing  business  in  retail  stores  in  all  of 
the  principal  cities  of  the  country,  he  stated  that  he  found  the 
tendency  indicated  above  to  be  generally  true. 

Coming  at  the  same  idea  in  another  way,  the  Harvard 
Bureau  of  Business  Research  states: 

"On  rather  limited  data,  so  that  it  must  be  stated  tenta- 
tively, it  yet  begins  to  appear  as  if  the  rent  item  fell  off 
markedly  in  importance  in  towns  of  less  than  100,000  popu- 


"  Dawson,  "Unearned  Increment,"  page  52. 

"^^  System,  March,   191 1, 

"  "How  to  Run  a  Store  at  a  Profit."     A.  W.  Shaw  Co. 

^^Manager  Com'l  Research  Division.     Curtis  Pub.  Co. 


LOCATION  AND  RENT 


\ 


183 


lation."     Elsewhere  this  report  indicates  a  range  in  rent  "from 
1.8  per  cent  to  14.6  per  cent  of  the  net  sales  of  going  con- 


cerns. 


"18 


Figures  collected  by  the  writer  in  person  from  a  hundred 
stores  in  towns  of  various  sizes  in  the  Middle  West  indicate 
no  exceptions  to  the  general  tendency.  For  example,  a 
neighborhood  grocery  store  in  a  Wisconsin  city  of  30,000 
population  pays  i^^  per  cent  of  its  sales  for  rent,  while  one 
of  the  largest  and  most  prosperous  grocery  stores  in  the  down 
town  section  pays  2  per  cent  for  rent.  A  drygoods  store 
a  few  doors  off  from  the  main  street  of  a  town  of  25,000 
population  pays  2.3  per  cent  for  rent,  while  a  principal  dr)^- 
goods  store  in  the  town  pays  3  per  cent.  A  shoe  store  in  a 
neighborhood  shopping  district  in  one  of  the  large  cities  of  the 
country  pays  2  per  cent  for  rent,  while  one  of  the  best  located 
shoe  stores  in  the  same  city  pays  6  per  cent. 

Relative  Increase  from  Towns  to  Cities. — On  passing  from 
the  best  locations  in  small  towns  to  the  best  locations  in  larger 
cities,  the  same  rule  seems  to  hold.  The  share  of  the  landlord 
tends  to  increase  faster  than  the  sales.  The  payment  for  rent 
for  a  good  dry-goods  store  in  a  town  of  18,000  is  2  per  cent; 
for  the  best  located  store  in  a  city  of  25,000  it  is  3  per  cent ; 
for  a  well  located  dry-goods  store  in  a  city  of  300,000  it  is  3^^ 
per  cent;  and  in  a  city  of  over  a  million  it  is  4^  per  cent  of 
saicrf.  A  small  country  town  shoe  store  pays  2  per  cent  for 
rent;  in  a  town  of  25,000  population,  one  of  the  best  shoe 
stores  pays  3  per  cent;  and  in  a  metropolitan  center  the  rent 
is  6  per  cent.  These  are  typical  of  the  figures  at  hand,  and, 
if  not  conclusive,  are  at  least  suggestive. 

Characteristics  of  Retail  Store  Rents. — In  conclusion,  rents 


^"^  Bulletin    No.    i.    Preliminary    Figures    on    the    Retailing    of    Shoes,    May,    1913, 
page  1 1. 


I84 


ECONOMICS  OF  RETAILING 


2. 


4. 


in  the   retail  business  seem  to  present  the    following  char- 
acteristics : 

I.  The  amount  of  rent  paid  by  a  store  manager  for  a 
retail  store  depends  primarily  upon  the  compara- 
tive desirability  of  the  location.  Desirability  of 
location  means  possibility  of  making  profits.  The 
more  desirable  the  location,  the  higher  will  be  the 
rent. 

The  rent  tends  to  increase  not  only  absolutely  but 
relatively  to  profits  on  passing  from  poorer  to 
better  locations. 

The  rent  tends  to  increase  not  only  absolutely  but 
relatively  to  profits  on  passing  from  the  best  lo- 
cations in  smaller  towns  to  the  best  locations  in 
larger  towns. 

The  rent  tends  to  increase  not  only  absolutely  but 

relatively  to  profits  as  the  desirability  of  a  location 

increases  over  a  period  of  time. 

5.     In  the  long  run  the  most  efficient   store  managers 

tend  to  get  possession  of  the  best  store  locations. 

Such  questions  might  very  properly  arise  at  this  point, 
as,  how  high  can  retail  rents  go;  are  there  any  checks  pre- 
venting the  complete  operation  of  these  principles  of  rent; 
and  can  retail  rents  absorb  all  pure  profits  ? 

How  High  Can  Rents  Go?— In  considering  how  high  re- 
tail rents  can  go,  one  must  constantly  bear  in  mind  that  there 
is  competition  of  landlords  as  well  as  of  store  managers.  The 
rent  for  the  best  location  in  any  town  can  go  no  higher  than 
the  point  which  equalizes  the  remaining  product  in  the  form  of 
profits  from  that  location  with  the  product  which  may  be 
earned  in  the  next  best  locations.  Rent  can  absorb  a  great 
part  of  the  profits  made  by  retailers  of  average  efficiency,  but 


LOCATION  AND  RENT 


185 


never  all  of  the  profits  made  by  the  most  efficient.  The  most 
efficient  man  will  leave  the  best  location  for  the  next  best  the 
moment  the  landlord  raises  the  rent  above  the  point  that  leaves 
the  store  manager  no  surplus  profit.  But  as  no  other  man- 
ager can  pay  as  much  rent,  the  landlord  will  soon  call  him 
back  again.  Thus,  while  rents  tend  to  crowd  profits,  they 
can  probably  never  absorb  all. 

One  might  assume  that  long  ownership  of  a  single  loca- 
tion well  managed  would  finally  lead  to  getting  the  highest 
rents.  The  history  of  retail  districts  in  cities  shows,  how- 
ever, that  the  point  of  best  locations  is  never  really  stationary, 
and  that  in  the  course  of  a  generation  it  is  likely  to  be  several 
blocks  from  the  original  place. 

Though  merchants  may  build  up  trade  and  good-wall  for 
a  period  of  years,  items  of  value  that  are  in  turn  to  a  certain 
extent  absorbed  in  the  landlord's  rent,  general  currents  in  retail 
trade  beyond  the  control  of  any  merchant,  finally  come  and 
sweep  away  all  these  advantages.  In  scarcely  a  city  in  the 
country  does  the  center  of  the  retail  district  occupy  the  same 
place  today  that  it  occupied  fifty  years  ago.  Though  taking 
more  years  to  accomplish  the  changes,  the  same  thing  seems 
to  be  going  on  in  the  older  cities  of  Europe  as  well.  Retail 
locations  have  their  periods  of  rise  and  decline  in  desirability 
just  as  empires  have  their  rise  and  decline  in  power.  Every 
change  of  this  kind  brings  new  opportunities  to  new  groups  of 
people  in  the  business  field. 


Checks  to  Operation  of  Rent  Tendencies. — There  are  sev- 
eral checks  to  the  complete  and  perfect  operation  of  the  ten- 
dencies of  rent  that  have  been  enumerated: 

I.  For  one  thing,  retail  profits  are  hardly  ever  so  certain 
as  have  been  assumed  in  the  illustrations  used  in  this  chapter. 
Some  allowance  must  always  be  made  for  the  element  of 
chance  that  stands  out  large  in  the  retail  business.     The  profits 


i86 


ECONOMICS  OF  RETAILING 


assumed  in  the  illustrations  might  materialize  one  year,  and 
the  next  year  might  be  represented  by  a  minus  quantity,  or 
deficit.  Both  the  store  manager  and  the  owner  of  store  prop- 
erty must  constantly  make  estimates  of  the  possible  business 
and  profits,  but,  in  practice,  these  estimates  are  always  subject 
to  qualification.  Hence  the  merchant  offers  less  rent,  and  the 
landlord  may  take  less  rent,  for  a  time,  than  would  otherwise 
be  necessary  or  probable  if  the  business  were  of  more  stable 
nature. 

2.  Another  check  to  the  freer  operation  of  these  tenden- 
cies is  the  ignorance  of  the  landlord  in  many  cases  regarding 
what  his  tenant,  the  merchant,  is  really  accomplishing  with 
the  location.  The  latter  conceals  his  profits  and  pleads  for 
the  lowest  possible  terms.  In  the  absence  of  keen  competition 
he  is  in  many  cases  able  to  keep  his  rent  down  to  a  low 
percentage  of  sales,  simply  because  the  landlord  does  not  know 
how  much  the  location  is  worth  to  him. 

3.  Then  there  are  customary  rents  beyond  which  land- 
lords find  it  hard  to  push  the  retailers.  In  some  towns  $100 
per  month  is  the  highest  customary  rent,  though  on  strict  econ- 
omic principles,  some  locations  might  pay  $110,  $125,  or 
even  more.  The  retailers  of  a  town  sometimes  combine,  or 
come  to  an  understanding,  not  to  pay  more  than  a  certain  rent. 
Checks  on  retail  rents  such  as  customs  and  combinations  of 
these  kinds  are  characteristic  of  the  easy-going  little  country 
town  rather  than  the  brisk,  rapidly  growing  city.  In  the  latter 
environment  custom  counts  for  nothing  and  combinations  are 
usually  easily  broken  up. 

4.  The  long-time  leasing  system  also  acts  as  a  check  on 
the  operation  of  the  laws  of  rent.  It  prevents  the  ready  ad- 
justment of  rent  to  the  actual,  present  desirability  of  the 
location.  Under  the  long-term  lease,  sometimes  one  party 
gets  the  benefit  and  sometimes  the  other,  depending  largely 
upon  whether  retail  trade  currents  are  coming  towards  or  pass- 


LOCATION  AND  RENT 


187 


ing  away  from  the  location  at  the  time  of  the  making  of  the 
lease  and  thereafter. 

5.  Bargaining  is  not  always  carried  to  the  extreme  auc- 
tioning method  indicated.  In  many  cases  a  merchant  makes 
as  good  an  offer  as  he  can,  once  and  for  all,  and  the  landlord 
takes  him  at  his  word,  and  accepts  or  rejects  as  the  case  may 
be.  Thus  errors  in  market  judgment  are  sometimes  made. 
The  rent  is  sometimes  placed  higher  than  it  need  be.  Actual 
lessors  are  not  always  available  at  the  times  that  leases  expire, 
hence  good  locations  sometimes  go  begging  as  it  were,  because 
of  lack  of  good  merchants  in  the  market  seeking  for  locations. 

Many  such  checks  act  to  prevent  the  rent  tendencies  from 
operating  freely.  In  some  cases  the  checks  may  be  more 
powerful  than  the  tendencies.  The  most  that  can  be  said 
until  further  statistics  upon  the  subject  have  been  gathered 
is  that  the  resultant  of  the  opposing  forces  seems  to  be  some- 
what in  favor  of  what  we  have  here  called  the  "tendencies 
of  retail  rents." 


I 


CHAPTER  XII 

LOCATION  AND  RENT  IN  THE  RETAIL  BUSINESS 

(Continued) 

Factors  of  Desirability  in  Location 

Value  of  Location  Determined  by  Profits.— The  value  of 
a  retail  store  location  is  determined  solely  by  the  possibilities 
it  offers  of  making  a  profit.  The  possibilities  of  making  a 
profit  depend  upon  the  possibilities  of  making  sales.  There 
can  be  no  profits  without  sales,  but  there  can  be  sales  without 
profits.  The  sales  of  some  goods,  such  as  class  goods,  fashion 
goods,  and  novelties,  yield  a  high  profit  in  proportion  to  sales. 
Other  goods,  such  as  staples  of  everyday  use  by  the  masses, 
generally  yield  but  a  low  profit  in  proportion  to  the  sales. 
Thus  small  sales  with  high  profits  may  in  some  cases  be  fully 
as  profitable  as  large  sales  with  low  profits.  In  any  case  the 
profit  is  the  important  consideration.  A  good  location  is  one 
that  permits  the  retailer  to  make  a  good  profit  either  from 
small  sales  and  large  margins,  or  from  larger  sales,  with  un- 
usually small  margins  of  profit. 

The  customary  method  of  expressing  the  rent  that  a  store 
pays  as  a  percentage  of  the  sales  of  the  store,  is,  therefore, 
defective  as  a  basis  of  comparison  with  other  stores,  unless 
one  also  knows  what  gross  profit  is  made  on  the  sales.  Of 
the  two  items,  profit  is  by  far  the  more  important  with  which 
to  compare  the  outlay  for  rent. 

Accessibility  Determines  Sales. — The  possibility  of  making 
sales  depends  upon  accessibility  to  the  purchasing  public.     The 

i88 


LOCATION  AND  RENT 


189 


greater  the  number  of  people,  other  things  being  equal,  who 
live  near,  who  come  to,  or  who  pass  by  a  certain  location,  the 
more  valuable  that  location  is.  Every  retailer  who  knows 
his  business  recognizes  this.  The  late  Frank  W.  Woolworth, 
expressed  this  idea  exactly  when  he  said,  *T  set  my  traps  where 
the  mice  are  thickest."  Store  managers,  particularly  the  man- 
agers of  certain  chain-store  systems,  on  seeking  out  new  loca- 
tions for  stores,  first  determine  the  number  of  people  who 
pass  the  proposed  locations,  actually  counting  them  for  certain 
periods  of  time,  often  for  weeks,  so  as  to  get  accurate  data, 
and  then  giving  their  preference  for  store  location  to  those 
places— other  things  being  equal— that  show  the  highest 
counts. 

The  merchant  who  locates  at  the  point  that  is  easiest  for 
customers  to  get  to,  that  requires  the  least  possible  effort  from 
them  in  every  possible  way,  has  the  best  chance  to  succeed. 
This  well-known  fact  accounts  for  the  location  of  the  cross- 
roads store  in  the  country,  the  corner  store  in  the  village,  the 
neighborhood  store  in  the  residential  section  of  the  city, 
and  the  ''downtown"  or  ''uptown"  store  in  the  center  of  the 
city. 

Neighborhood  Stores.—The  neighborhood  store  aims  to 
get  as  close  to  the  homes  of  the  prospective  customers  as  pos- 
sible, so  that  it  will  be  easy  for  them  to  come  to  the  store 
or  to  send  for  goods  by  means  of  children  or  servants,  and 
so  that  deliveries  can  be  made  quickly.  But  neighborhood 
stores  must  as  a  rule  content  themselves  with  ha^idling  onlv 
such  lines  of  goods  as  are  of  daily  necessity  in  the  surround- 
ing homes— such  as  groceries,  meats,  baked  goods,  and  dairy 
products.  Another  limitation  on  a  neighborhood  store  that  is 
clearly  evident,  is  that  its  area  of  trade  is  limited.  Hardly 
ever  does  trade  for  such  a  store  come  further  than  four  or 
five  blocks.     Beyond  this  radius  the  influence  of  competing 


190 


ECONOMICS  OF  RETAILING 


neighborhood  stores,  or  the  attraction  of  the  stores  in  the 
center  of  the  city  overpower  the  trade  possibiHties  of  the 
neighborhood  stores.  There  are  here  and  there  neighborhood 
store  managers  who  are  able  to  push  their  trade  beyond  these 
natural  limits,  but  such  cases  are  exceptional.  The  amount  of 
neighborhood  trade  depends,  therefore,  upon  the  population 
of  the  immediate  vicinity,  and  rent  for  such  locations  is 
determined  accordingly. 

Stores  in  rich,  fashionable  neighborhoods  are  able  to  com- 
mand higher  profits  in  proportion  to  sales  than  stores  in 
poorer  neighborhoods,  and  the  proportion  of  rent  to  sales 
varies  in  the  same  way.  A  grocery  store  in  one  of  the  best 
residential  districts  of  a  Middlewestem  city  of  350,000  peo- 
ple, pays  a  rent  of  nearly  3  per  cent  on  its  sales,  while  another 
neighborhood  grocery  in  another  section  of  the  same  city 
occupied  by  wage  earners,  a  store  doing  approximately  the 
same  volume  of  business  as  the  other,  pays  slightly  less  than 
2  per  cent  of  its  sales  for  rent.  While  the  sales  are  about 
the  same  in  both  cases,  the  first  merchant  is  slightly  better  off. 
The  lines  of  goods  he  handles  make  a  much  better  profit 
per  dollar  of  sales  than  do  those  handled  by  the  second  store. 
The  profits  from  his  location  are  considerably  higher,  hence 
he  has  to  pay  a  higher  percentage  for  rent,  but  still  makes  more 
money  than  the  second. 

The  Centrally  Located  Store.— The  centrally  located  store, 
as  the  term  expresses,  is  located  where  the  most  people  nat- 
urally come  together,  whether  it  be  at  a  country  crossroads, 
the  place  of  intersection  of  principal  streets  in  a  city,  or  at  the 
intersection  of  street  car  or  other  transportation  lines.  It 
is  a  matter  of  dispute  as  to  whether  a  retail  store  away  from 
the  traveled  streets  can  be  conducted  so  well  as  to  draw  a 
profitable  and  permanent  trade  to  itself,  but  it  is  a  well  recog- 
nized fact  that  most  merchants  do  not  court  the  difficulties  of 


LOCATION  AND  RENT 


191 


such  an  attempt.  The  commonest  struggle  among  retailers 
IS  that  for  the  location  which  is  passed  by  the  greatest  num- 
ber of  people. 

Purchasing  Power  of  Customers   a  Factor  of  Location 
Value.— In  considering  the  value  of  a  location  for  a  retail 
store,  however,  something  more  than  the  number  of  passers- 
by  must  be  taken  into  account.     The  purchasing  power  and 
the  probable  proportion  of  customers  from  the  passing  crowds 
are  most  important  considerations.     Hence  in  analyzing  a  lo- 
cation for  a  retail  store,  one  must  determine  what  economic 
classes  are  represented,  to  what  extent  in  each  case,  and  what 
their  buying  habits  are.     A  knowledge  of  the  average  wealth 
might  be  misleading,  especially  if  there  are  several  classes  in  a 
community.     Most    of    the    passers-by    might    come    from 
families  whose  total  incomes  were  under  $800  per  year,  while, 
if  a  millionaire  came  by  occasionally,   the  average   income 
might  seem  to  be  above  $1,000.     What  the  man  who  wishes  to 
start  a  retail  store  wants  to  know  is  how  many  out  of  this 
passing  crowd  spend  $10  for  their  suits  of  clothes,  how  many 
$15,  how  many  $20,  how  many  $25,  and  how  many  above 
that;  or  how  many  of  the  women  passing  spend  less  than  $10 
per  year  for  millinery,  how  many  between  $10  and  $20,  how 
many  between  $20  and  $50;  or  how  many  of  the  men  who 
pass  smoke  5-cent  cigars  and  how  many  lo-cent  cigars,  and 
to  what  extent  they  are  smokers.     The  average  of  wealth  is 
a  poor  guide  to  such  facts.     Specific  amounts  expended  by 
specific  numbers  of  people  who  pass  by  are  much  more  de- 
sirable   facts. 

Frame-of-Mind  of  Passers-By  a  Factor.— Another  classifi- 
cation of  passers-by  that  will  prove  helpful  in  determining  an 
estimate  of  the  possibilities  of  a  location  is  based  on  the  pur- 
pose or  the  reason  for  their  passing  by.     Some  are  going  to 


192 


ECONOMICS  OF  RETAILING 


or  coming  from  their  place  of  work  or  business.  Others  are 
out  for  pleasure.  Others  are  out  to  buy,  while  others  are 
out  merely  to  look. 

Passers-by  going  to  or  returning  from  work  or  business 
are,  as  a  rule,  not  good  customers  for  anything,  with  the  one 
exception  of  the  higher-salaried  and  income-receiving  classes 
who  patronize  news-stands,  bootblacks,  barber  shops,  cigar 
stores,  and,  to  some  extent,  haberdasheries,  on  their  way  to 
and  from  business.  Large  crowds  of  factory  employees,  men 
and  women,  may  pass  a  store  day  after  day  for  years  on  their 
way  to  and  from  work  and  never  patronize  it.  On  their 
way  to  work,  there  is  usually  little  time  left  before  the  whistle 
blows,  hence  there  is  little  or  no  chance  to  look  at  goods.  On 
their  way  from  work,  they  are  usually  tired  and  hungry  and 
not  in  the  mood  of  shopping.  Many  factory  workers,  particu- 
larly of  the  younger  generation,  do  not  care  to  trade  in  a 
store  or  in  a  part  of  town  where  their  occupation  is  known  or 
where  any  reference  may  be  made  to  their  daily  labor.  The 
"downtown"  retail  district  is  much  more  likely  to  draw  their 
trade.  A  very  large  part  of  the  goods  of  all  kinds  needed 
by  the  family  from  which  the  factory  worker  comes  is  pur- 
chased by  the  wife  or  mother,  and  thus  the  trade  goes  to  the 
locations  that  are  the  most  convenient  or  attractive  for  her. 
The  only  classes  of  retail  business  that  seem  to  do  well  on  the 
custom  of  working  people,  going  to  or  coming  from  work, 
are  the  cheaper  grades  of  restaurants,  lunch  counters  and 
similar  eating  places. 

Pleasure  seekers  are  usually  better  buyers  than  the  army 
of  workers  passing  to  or  from  work.  Refreshments,  flowers, 
sweets,  souvenirs,  and  trinkets  are  some  of  the  objects  that 
may  appeal  to  their  fancies.  Such  trade  is  strictly  chance  cus- 
tom. It  is  entirely  dependent  upon  the  time  of  year,  the  oc- 
casion, and  the  weather.  A  fine  summer  day  brings  out  a 
crowd  of  people  along  the  fashionable  streets.    A  converging 


LOCATION  AND  RENT 


193 


point  of  such  thoroughfares  makes  a  splendid  location  for 
a  refreshment  stand.  On  stormy  days  the  same  location  may 
be  worth  nothing.  The  street  leading  out  to  the  fair  grounds 
when  the  fair  is  in  session,  and  the  route  to  the  circus  ground 
when  a  circus  is  in  town,  are  dotted  with  refreshment  booths, 
the  best  located  doing  a  good  business  and  finding  it  profitable 
to  pay  a  high  rental  for  the  day  for  the  location  which  would 
be  absolutely  worthless  to  them  on  the  next  day  for  the  same 
purpose. 


"Shoppers"  the  Most  Valuable  Passers-by.— The  people 
who  come  out  for  the  express  purpose  of  shopping  and  buying 
are  for  the  majority  of  retail  businesses  by  far  the  most  im- 
portant classes.     The  places  to  which  these  people  go  are  the 
places  that  are  valuable  for  retail  purposes.     Shoppers  and 
buyers  go  where  the}-  think  they  can  see  and  get  what  will  give 
them  the  most  satisfaction.     Except   for  such  necessities  as 
common  foods,  meats,  and  so  on,  the  place  to  buy,  according 
to  the  opinion  of  the  shoppers,  is  nearly  always  in  the  heart 
of  the  town.     This  may  be  the  location  of  the  village  corner 
store,  the  big  stores  at  the  intersection  of  the  principal  streets 
in  the  city,  or  the  place  where  the  great  public  markets  are 
located.     Here,  in  the  mind  of  the  average  customer,  is  of- 
fered the  biggest  variety,  the  best  qualities,  the  best  facilities 
for  examination,  and  the  biggest  bargains.     Because  others 
come  here  to  purchase  goods,  this  is  assumed  to  be  the  best 
place. 

In  any  case,  the  most  central  point  is  the  most  valuable 
retail  store  location.  Retailers  who  cannot  gtt  this  best  loca- 
tion struggle  to  get  as  near  to  it  as  possible,  and  rents  are 
largely  bargained  for  on  the  basis  of  distance  from  this  cen- 
tral market  point.  Thus  the  retail  store  group  spreads  out 
f rom^  the  center,  especially  along  the  streets  most  frequented 
or  best  traveled. 


194 


ECONOMICS  OF  RETAILING 


Tendency  of  Retail  Stores  to  Cluster  Together. — Stores 
tend  to  cluster  around  this  best  location  in  the  city  and  to 
form  what  is  known  as  the  retail  district.  The  stores  estab- 
lished are  not  always  competitors.  Almost  as  frequently  they 
arrange  themselves  into  complementary  groups  co-operating 
with  each  other  in  the  attraction  of  custom  and  in  the  making 
of  sales.  Thus,  .stores  dealing  in  men's  goods  are  sometimes 
found  on  one  side  of  the  street,  while  stores  dealing  in  wo- 
men's goods  are  located  on  the  other  side.  Dry-goods,  mil- 
linery, jewelry,  shoe,  and  book  stores  are  likely  to  be  found 
close  together,  if  not  entirely  absorbed  under  one  roof  in 
the  form  of  a  department  store.  Grocery  stores,  meat  mar- 
kets, and  bakeries  tend  to  form  another  grouping,  each  co-op- 
erating in  a  way  with  the  other  kinds  of  stores  in  the  group. 
Confectioneries,  soda  and  ice  cream  parlors,  florists'  shops, 
and  theatres  form  another  natural  grouping.  The  pool  and 
billiard  hall,  tobacco  and  news-stand,  and  the  cheaper  grade  of 
restaurants  form  .still  another. 

But  stores  that  sell  exactly  the  same  kinds  of  goods,  and 
that  are  clearly  competitive,  do  not  necessarily  merely  divide 
the  business  that  was  formerly  done  by  one  store.  When 
there  is  known  to  be  competition  this  in  itself  attracts  trade, 
and  people  come  from  farther  away.  New  wants  are  devel- 
oped that  did  not  exist  before.  Thus  the  result  is  an  increase 
in  the  total  amount  of  trade.  Cases  are  known  where  the  in- 
crease was  so  great  as  to  give  to  each  of  the  competitors  more 
business  than  had  been  enjoyed  by  the  single  merchant  before. 
This,  of  course,  is  exceptional. 

The  tendency  of  stores  to  cluster  closely  together  is  not 
only  profitable  to  the  merchants  themselves,  but  is  a  conven- 
ience to  the  customers.  In  fact,  the  convenience  to  the  cus- 
tomer is  the  chief  cause  for  the  close  grouping.  Stores  hand- 
ling the  same  or  similar  lines  and  stores  handling  different 
lines  of  goods,  all  close  together,  save  the  customer's  time. 


LOCATION  AND  RENT 


195 


This  is,  probably,  the  greatest  argument  for  the  department 
store,  which  assembles  many  lines  under  one  and  the  same 
roof. 

Most  customers,  particularly  women,  like  to  compare 
values  in  different  stores  before  purchasing.  An  investiga- 
tor for  a  large  publishing  house  ^  has  stated  that  "before  she 
buys,  a  woman  usually  visits  three  stores  to  compare  goods. 
The  man,  who  is  distinctly  'anti-shop'  in  his  inclinations,  on 
the  contrary,  visits  but  one."  Competing  stores,  located  close 
together,  and  dealing  in  goods  women  buy,  permit  com- 
parisons to  be  made  easily. 

Other  Advantages  of  Clustering. — Another  advantage  of 
locating  competing  stores  close  together  is  the  possibility  of 
drawing  trade  from  customers  who  had  planned  on  going  di- 
rectly to  some  one  of  the  competitors.  Such  customers  may 
frequently  be  induced  to  enter  other  stores  by  attractive  win- 
dow displays,  and  whether  they  do  or  do  not  buy  the  goods 
that  they  had  planned  to  buy  from  the  competitor,  perhaps, 
seeing  the  displays,  they  will  buy  other  goods  that  they  had 
not  thought  of  before.  In  this  way  even  competitors  help 
each  other  to  a  certain  extent. 

A  location  next  to  a  large,  old,  well-advertised,  well-known, 
and  popular  store  is  always  valuable  for  another  store  dealing 
either  in  complementary  or  competitive  lines  of  goods.  A 
Middlewestern  jobbing  house  that  has  a  service  department 
to  aid  those  who  wish  to  establish  variety  goods  stores  fre- 
quently advises  the  locating  of  the  store — so  it  is  stated — 
next  door,  if  possible,  to  a  syndicate  5  and  10  cent  store,  if 
there  happens  to  be  one  in  the  town.  Out  of  the  crowds  who 
go  to  the  latter,  many  can  be  attracted  into  the  independent 
variety  goods  store.     The  advertising  value  of  the  big  store  is 


^  C.  C.  Parlin,  Manager  of  Research  Division,  Curtis  Publishing  Co.,  in  an  address 
before  the  Advertisers'  Convention,  Cincinnati,  September  24,   1913. 


196 


ECONOMICS  OF  RETAILING 


shared  to  a  certain  extent  by  the  smaller  and  newer  store  next 
door. 

Retail  Stores  and  the  Public  Market.-In  cities  or  towns 
having  a  public  market  that  amounts  to  anything,  stores  fre- 
quently group   themselves   about   the   market   place.     It   has 
been  remarked  by  several  writers  tha^  the  establishment  of 
city  markets  in  this  country  is  usually  opposed  by  the  city 
merchants,  particularly  those  who  deal  in  the  goods  likely  to 
be  bought  and  sold  on  the  public  market.     There  is  probablv 
reason  for  this,  but  after  the  city's  merchandising  has  once 
readjusted  itself  to    the    market,    its    removal    is    generally 
strongly  opposed  by  the  merchants.     The  removal  of  the  city 
market  has  in  many  cases  ruined  whole  retail  districts  which 
had  been  built  up  around  and  near  the  old  market  place.     This 
merely  exemplifies  the  principle  that  retail  stores  must  go  to 
the  people  and  that  the  people  are  not  likely  to  go  out  of  their 
way  to  find  the  stores. 

Buying  Habits  of  Customers.— We  have  so  far  considered 
the  possibilities  of  a  retail  store  location  from  the  standpoint 
of  the  number  of  passers-by,  the  purposes  that  bring  them,  and 
the    buying    power    represented.     There    is    another    factor 
having  an  influence  on  the  value  of  a  location  and  that  is  the 
buying   habits    of   the   possible    customers.      Not   all    people 
within  even  the  same  economic  classes,  or  those  having  the 
same  incomes,  expend  their   money    in    the    same    way^    In 
nothing  is  this  more  clearly  exemplified  than  in  lines  com- 
monly called  luxuries.     Some  people  spend  their  money  freely 
for  such  items,   while  others   with  the   same  income  do   so 
sparingly.     The   average   consumption   of   such   commodities 
varies  greatly  from  one  community  to  another.     According  to 
George  J.  Whelan,  President  of  the  United  Cigar  Stores  Com- 
pany, the  expenditure  for  cigars  is  as  follows  in  the  principal 
cities : 


LOCATION  AND  RENT  197 

Annual  Cigar  Consumption  in  American  Cities^ 

New  York   $1.74  per  capita 

Chicago    63  " 

St.  Louis   1.21  "  " 

Rochester    .07  "  " 

Spokane    .60  "  " 

San   Francisco    4.06  "  " 

Milwaukee    22  "  " 

Atlantic   City    2.55  "  " 

Other  things  being  equal,  the  value  of  a  location  for  a 
cigar  store  passed  by  a  certain  number  of  people  can  not  be  as 
high  in  Milwaukee  as  a  similar  location  passed  by  about  the 
same  number  in  San  Francisco. 

Such  differences  in  tastes  and  habits  are,  no  doubt,  just 
as  important  in  many  other  lines.  In  this  connection  it  may 
be  noted  that  tastes  and  habits  are  neither  stationary  nor 
l)ermanent.  What  is  true  for  one  year  may  not  be  true  for 
the  next.  In  so  far  as  such  changes  take  place,  they  are  re- 
flected in  the  retail  business  and  thence  back  to  the  location 
of  the  retail  store  that  is  most  conveniently  situated  to  serve 
the  demands. 

General  Influences.— Any  influence  on  the  course  of  peo- 
ples' movements  affects  the  value  of  a  retail  location.  Certain 
streets  are  more  popular  than  others,  and  one  side  of  the  street 
is  generally  more  traveled  than  the  other,  with  a  consequent 
difference  in  value  for  retail  purposes.  One  must  assume  that 
there  are  definite  reasons  for  this,  and  upon  the  basis  of  these 
reasons  the  retailer  must  select  his  location  or  make  the  best 
use  of  the  one  already  selected. 

Sunlight  and  temperature  tend  to  make  one  side  of  the 
street  more  crowded  than  the  other.  In  warm  climates  and 
in  warm  weather,  people  seek  the  shady  side.     In  colder  cli- 

'  From  Printers'  Ink.  quoted  in  Cherington's  "Advertising  as  a  Business  Force  " 


i 


198 


ECONOMICS  OF  RETAILING 


mates,  and  in  the  winter  time,  they  walk  on  the  sunny  side. 
Which  side  of  the  street  is  most  popular  must  depend  there- 
fore upon  what  time  of  the  day  shoppers  come  out  in  greatest 
numbers.  In  most  stores  the  heaviest  trade  occurs  during 
the  afternoon.  The  richer  classes  in  the  larger  cities  do  their 
shopping  generally  between  11  a.m.  and  3  p.m.  For  most 
parts  of  this  country  the  sides  of  the  streets  that  are  shady 
during  the  afternoon,  namely  the  south  and  the  west  sides,  are 
the  ones  which  people  prefer  to  take.  The  exceptions  are 
some  of  the  cities  in  the  most  northern  tier  of  states,  where 
the  most  popular  sides  of  the  streets  are  the  north  and  east 
sides.  This  seems  to  be  true  more  especially  for  the  winter, 
late  fall,  and  early  spring  months. 

The  shady  side  of  the  street  has  another  advantage.  Be- 
cause of  the  reflection  of  softer  lights  from  the  plate  glass  and 
show-window  back-grounds  on  this  side,  the  window  displays 
appear  to  better  advantage,  and,  therefore,  draw  more  at- 
tention. Also  a  greater  variety  of  goods  can  be  shown,  and 
much  better  effects  can  be  obtained  on  the  shady  side  of  the 
street  than  on  the  sunny  side,  because  of  less  danger  to  the 
goods  themselves  from  the  effects  of  the  sun.  Goods  of  deli- 
cate shades  generally  fade  easily  and  need  protection  from 
the  sun's  direct  rays.  In  order  to  display  such  goods  on  the 
sunny  side,  awnings  are  necessary,  but  awnings  interfere 
with  the  widest  and  best  use  of  the  front  of  the  building  and 
windows,  hence  may  be  considered  in  the  light  of  necessary 
evils  only. 

Preferable  Side  of  Street  in  New  York. — In  New  York 
City,  for  example,  the  west  side  of  Broadway  and  the  south 
side  of  Fourteenth  and  Twenty-third  streets  and  other  wide 
streets  are  worth  much  more  than  the  opposite  side.  On  the 
average  the  rental  value  of  the  favorite  locations  is  about  dou- 
ble those  of  ordinary  locations  in  these  vicinities.  There  are  ex- 


LOCATION  AND  RENT 


199 


ceptions,  however.  "A  Wanamaker  can  pull  trade  anywhere, 
but  if  Macy  should  change  places  with  Wanamaker,  history 
would  record  a  very  different  story  of  the  retail  dry-goods 
trade  of  New  York."' 

R.  M.  Hurd,  in  his  "Principles  of  City  Land  Values" 
states  that  the  west  .side  of  north  and  south  streets  and  the 
south  side  of  east  and  west  streets  are  generally  worth  from  20 
per  cent  to  40  per  cent  more  than  the  opposite  sides,  and  in 
some  cases  the  difference  in  value  may  run  as  high  as  100 
per  cent. 

Effects  of  Climatic  Conditions. — In  some  places  there  are 
generally  prevailing  winds  that  strike  certain  locations  or 
one  side  of  certain  streets  in  a  more  disagreeable  way  than  the 
other  side,  causing  values  to  be  less  on  the  exposed  side. 
Dusty  and  windy  locations  are  never  desirable  if  they  can  be 
avoided. 

If  a  town  is  built  on  a  side  hill,  the  upper  side  of  the  street 
is  nearly  always  preferable  to  the  lower.  There  seems  to  be 
a  sort  of  inherent  tendency  among  human  beings,  as  among 
goats,  to  get  on  the  upper  side  of  things.  The  reason  may 
be  that  the  upper  side  gives  a  better  view,  or  it  may  be  that  it 
is  less  laborious  to  go  from  the  upper  side  to  the  lower  side,  if 
necessary  to  cross  the  street.  Dust  and  refuse  tend  to  gather 
on  the  lower  side  of  the  street  with  the  result  that  the  upper 
side  is  generally  cleaner.  Whatever  the  cause,  the  fact  re- 
mains that  the  upper  side  seems  to  be  favored  in  most  cases. 
This  tendency  may  be  remedied  to  a  certain  extent,  but  not  en- 
tirely, by  having  the  streets  graded  so  as  to  put  the  walks  on 
both  sides  on  the  same  level. 

"Hoodoo"  Locations. — Most  merchants  of  many  years*  ex- 
perience know   of   ''hoodoo"   locations,   places   which   would 

"Dry  Goods,  December,  191 1. 


200 


ECONOMICS  OF  RETAILING 


seem  to  be  favorable  for  a  retail  store,  but  in  which  every  mer- 
chant who  has  tried  them  has  failed.  It  is  not  easy  to  account 
for  these  things.  For  one  thing,  a  succession  of  failures  hurts 
a  location  for  future  trade.  Not  only  do  careful  merchants 
avoid  such  places,  but  customers  stay  away  also.  It  takes 
more  than  average  ability  to  turn  the  tide  towards  success 
in  some  such  places.  There  is  an  old  adage  among  merchants 
to  the  effect  that  it  is  easier  to  start  a  new  business  than  it  is 
to  raise  a  dead  one. 

Often  the  only  explanation  for  the  value  of  a  side  of  a 
street  for  business  puri:)oses  is  popular  habit.  People  con- 
tinue to  take  one  side  rather  than  the  other  because  some  time 
in  the  past  they  found  it  best  to  do  so.  After  the  reason  for 
so  doing  passed  away,  the  practice  continued  as  a  habit. 

Crowd  Habits.— Speaking  of  the  peculiarities  of  the  habits 
of  crowds,  R.  A.  Bruce,  general  manager  of  the  Beck  Shoe 
Store  Company  of  New  York,  operating  a  chain  of  New  York 
shoe  stores,  says: 

"Walk  up  Broadway  from  Twenty-third  street  to  Fiftieth. 
The  crowd  seems  to  be  about  the  same  on  both  sidewalks.  There 
are  stores  on  both  sides  too,  prosperous  stores.  It  would 
seem  to  be  a  matter  of  no  consequence  which  you  located 
a  shoe  store  on.  Yet  the  west  side  is  good  for  shoes  and 
the  east  side  is  bad.  That  holds  good  up  as  far  as  Fortieth 
street  and  then  it  suddenly  shifts.  From  there  up  to  Fiftieth 
the  east  side  of  the  street  is  a  little  better  than  the  other. 
Why?     I  can't  tell  you,  but  it  is  true." 

Corner  lots  are  more  valuable  than  inner  lots  the  very 
reason  that  more  people  pass  them.  The  corner  of  two 
streets,  both  equally  well  frequented,  is  passed  by  twice  as 
many  people  as  any  inside  lot  on  either  street.  Again,  the 
corner  is  a  kind  of  stopping  place  or  pausing  point  for  people 
who  are  uncertain  as  to  where  they  are  to  go.     Heavy  traffic 


LOCATION  AND  RENT 


201 


passing  may  cause  them  to  stop.  The  moment's  pause  may 
be  sufficient  to  cause  the  passer-by  to  notice  the  corner  store 
window  display  and  to  be  drawn  in  to  examine  goods  and 
to  buy.  In  bad  weather,  corner  locations  are  valuable  because 
people  drop  in  while  waiting  for  cars,  in  order  to  get  warm,  or 
to  await  the  passing  of  a  shower,  etc.  The  corner  is  fre- 
quently the  designated  meeting  place  for  many  people.  For 
these  reasons  the  corner  is  of  considerably  greater  value  than 
the  inside  lot,  and  especially  for  businesses  depending  upon 
pick-up  trade  or  chance  custom,  such  as  cigar  stores,  drug 
stores,  book  stores,  news  stores,  shops  dealing  in  curios,  sou- 
venirs, and  novelties  of  any  kind.  A  well-known  manager  of 
a  chain  of  shoe  stores  estimates  that  for  the  shoe  business  the 
corner  is  worth  at  least  20  per  cent  more  than  an  inside  loca- 
tion.* Some  tax  and  assessment  experts  assert  that  the  corner 
lot  is  worth  50  per  cent  more  than  inside  lots,  and  that  the 
corner  influence  extends  at  least  100  feet  down  each  street 
from  the  corner  in  a  diminishing  ratio.  Newark,  New  Jersey, 
for  example,  assesses  all  business  corner  lots  50  per  cent 
higher  than  inside  lots.*^ 

Corner  Locations. — There  is  a  difference  in  value  in  the 
corner  locations  that  corresponds  to  the  difference  found  be- 
tween opposite  sides  of  the  street,  and  for  similar  reasons.  In 
localities  where  the  south  and  west  sides  of  the  streets  are 
most  popular,  th^  southwest  corner  is  most  valuable,  the  south- 
east corner  comes  next,  the  northwest  corner  next,  and  the 
northeast  corner  last.  In  localities  where  the  sunny  sides 
are  preferred,  these  values  would  be  reversed. 

Disagreeable  Surroundings  a  Detriment. — The  presence 
of  near-by  disagreeable  features  of  any  kind  reduces  the  value 

*  Printers'  Ink,  August  7.   '9i3-       .      ^,  .,,,,.    „ 

*  "Real    Estate    and    Its   Taxation    in    riuladelphia,      a   pamphlet   published    by    the 
City   of   Philadelphia. 


^ 


202 


ECONOMICS  OF  RETAILING 


of  a  location  for  store  purposes.  Smoke,  dust,  disagreeable 
odors,  and  noise  from  near-by  shops  or  factories,  hurt.  A 
location  that  is  darkened  by  shadows  of  large  buildings  is  also 
less  valuable.  All  of  these  factors  depreciating  the  value  of 
the  location  must  be  made  up  for,  if  possible,  by  using  more 
advertising,  special  store  fronts,  unusual  lighting  effects,  or 
striking  window  displays. 

Proximity  to  stables,  asylums,  hospitals,  or  schools  gener- 
ally cuts  down  retail  trade,  and  hence  affects  location  value 
adversely.  Women  dislike  going  near  hospitals  and  stables. 
The  hospital  always  suggests  unpleasant  things  to  the  mind 
of  the  average  person,  and  location  near  a  school  is  likely  to 
be  affected  by  the  noise  of  children  playing. 

If  the  sidewalk  is  good  on  one  side  of  a  street  and  poor 
on  the  other,  or  if  the  sidewalk  is  level  on  one  side  and 
uneven  on  the  other,  people  will  take  the  better  walks  in  the 
large  majority  of  cases.  Steps  up  or  down  from  the  side- 
walk to  a  store  lessen  the  value  of  the  location.  A  rickety 
sidewalk  has  the  effect  of  driving  customers  to  the  other  side. 
A  sidewalk  kept  clean,  free  from  snow,  ice,  slush,  and  standing 
pools  after  rains  is  always  preferred. 

Old  and  worn-out  structures  near  by  also  hurt  a  retail 
location,  and  it  is  commonly  asserted  that  an  empty  building 
next  door  to  your  store  is  your  worst  competitor.  The  best 
location  is  the  one  that  looks  the  most  prosperous.  Empty  and 
old  buildings  indicate  favor  passed  away.  The  store  manager 
who  finds  that  the  building  next  to  his  is  vacated,  in  many 
cases,  either  tries  to  rent  it  for  his  own  use,  or  attempts  to 
get  a  tenant  for  the  property  who  will  sell  non-competitive  or 
complementary  lines  of  goods. 

Ease  of  Access  Desirable. — Other  things  being  equal,  the 
store  easiest  for  customers  to  reach  has  the  best  location. 
The  places  where  the  cars  stop,  where  the  farmers  tie  their 


LOCATION  AND  RENT 


203 


teams  when  coming  to  town,  and  where  the  street  has  the  best 
pavement  or  road  bed,  are  the  most  valuable.  Street  cars  and 
telephones  tend  to  concentrate  the  business  of  a  community  into 
the  central  section  of  town.  This  results  in  an  increase  in 
the  value  of  land  in  this  section,  and  a  decrease  in  land  values 
in  other  parts  of  town  farther  out,  for  retail  store  purposes. 
Patronage  given  distant  towns,  the  development  of  parcels 
post,  and  the  use  of  the  automobile,  and  even  to  a  certain  ex- 
tent the  development  of  better  roads  for  wagon  traffic 
have  helped  to  concentrate  trade  in  the  retail  districts  of  the 
larger  cities.  Locations  in  such  places  have  seemingly  grown 
more  valuable  with  nearly  every  invention  that  has  been  made 
in  the  way  of  improving  the  means  of  transportation  and 
communication. 

Many  other  factors  of  varying  degrees  of  importance 
influence  the  value  of  retail  store  locations,  but  all  depend  for 
their  influence  upon  the  principle  laid  down  at  the  beginning 
of  this  chapter,  namely,  that  the  value  of  a  site  depends  en- 
tirely upon  its  possibilities  for  making  profits.  For  the  op- 
portunity to  use  the  site,  the  tenant  pays  his  rent. 


i|! 


M 


11 


CHAPTER  XIII 

LOCATION  AND  RENT  IN  THE  RETAIL  BUSINESS 

(Continued) 

Intensive  Use  of  Location 

Cultivating  a  Location  Intensively.— A  good  location  for 
a  retail  store  simply  offers  the  possibility  of  getting  a  good 
profitable  trade,  provided  the  manager  of  the  store  *'hustles" 
for  it.  A  good  location  differs  from  a  poor  location  only  in 
the  fact  that  the  limits  of  trade  of  the  latter  are  more  quickly 
reached.  The  former  will  bear  intensive  cultivation,  the  latter 
will  not.  The  rent  is  the  payment  for  the  opportunity  to  cul- 
tivate and  to  harvest  the  product  of  the  given  location,  what- 
ever that  may  amount  to. 

When  the  retail  store  manager  is  confronted  by  a  demand 
for  more  rent,  it  means  that  he  must  in  turn  make  more  profit. 
Ordinarily  this  means  that  he  must  make  more  sales,  and  turn 
his  stock  more  rapidly.  In  order  to  accomplish  this,  factors 
other  than  location  must  be  right.  The  building  must  be 
appropriate  for  the  business  that  is  to  be  transacted;  perhaps 
more  than  one  floor  or  story  should  be  used ;  at  any  rate,  the 
floor  space  must  be  employed  as  effectively  as  possible.  Space 
may  perhaps  be  economized  by  the  use  of  special  fixtures  and 
equipment.  Something  can  often  be  done  to  provide  for  dis- 
tributing and  circulating  the  incoming  crowds  of  people  to 
all  parts  of  the  store.  In  addition  to  these  things,  trade  must 
be  attracted  to  the  store  by  means  of  improved  window  dis- 
plays, advertising  of  various  kinds,  and  by  special  service  to 
the  people  who  come  to  the  store.     Finally,  the  salespeople 

204 


LOCATION  AND  RENT 


205 


must  do  their  work  in  an  efficient  manner,  and  this  means  that 
they  must  be  trained.  All  sources  of  losses  to  the  store  must 
be  checked  and  stopped.  Through  such  methods  as  these  the 
store  managers  occupying  the  highest  priced  locations  are  able 
to  make  good ;  and  it  is  by  study  of  such  methods  as  these  that' 
retail  merchandising  can  be  improved  in  all  classes  of 
locations. 

Erect  a  Suitable  Building. — The  first  step  in  putting  a 
good  location  to  intensive  use  is  the  erection  of  a  suitable 
building.  In  most  cases,  particularly  in  this  country,  such 
work  is  performed  by  the  owner  of  the  .site.  This  fact  tends 
to  prevent  the  highest  efficiency  in  this  direction,  for  the  rea- 
son that,  unless  the  owner  of  the  site  is  himself  a  merchant,  or, 
unless  he  turns  over  all  of  the  planning  of  the  building  to 
someone  who  is  a  skilful  merchant,  several  architectural  fea- 
tures desirable  from  the  standpoint  of  merchandising  are  likely 
to  be  omitted.  Each  class  and  grade  of  merchandising  estab- 
lishment demands  a  store  built  for  the  purpose.  Store  archi- 
tecture in  this  country  is  still  in  its  infancy.  Only  in  the  case 
of  certain  large  types  of  institutions,  such  as  department 
stores,  can  it  be  said  that  a  true  type  of  merchandising  building 
has  been  developed  by  American  architects.  Hence  the  aver- 
age architect  is  by  no  means  to  be  trusted  to  plan  a  structure 
perfect  for  store  purposes. 

General  Structure.— The  building  should  be  constructed 
to  harmonize  with  the  ideals  of  its  particular  line  of  business 
and  the  particular  kind  of  trade  that  is  desired.  It  should 
combine  beauty  with  the  highest  type  of  utility  and  efficiency. 
Ordinarily  it  should  convey  the  impressions  of  solidity,  spaci- 
ousness, lightness,  and  airiness,  the  things  that  fit  in  with 
the  present  popular  ideas  of  art  and  sanitation.  It  needs  dis- 
tinctiveness to  help  attract  attention.     Store  fronts,  like  mil- 


206 


ECONOMICS  OF  RETAILING 


LOCATION  AND  RENT 


207 


!i 


linery,  are  subject  to  fashion,  hence  the  structure  of  the  build- 
ing should  be  such  as  to  permit  of  easy  and  economical  changes 
in  this  respect.  Further,  it  needs  to  be  built  so  as  to  reduce 
fire  risks  to  the  minimum  from  whatever  cause.  Thus  the 
building  should  combine  both  the  useful  and  the  beautiful. 

If  the  business  is  a  good  one,  a  merchant  may  feel  the  ne- 
cessity for  more  space  than  that  offered  by  the  main  floor. 
If  the  additional  space  cannot  be  obtained  economically  on 
either  side,  he  must  use  space  either  below  or  above  the  ground 
floor. 

Basements. — The  use  of  basements  as  adjuncts  to  main 
floor  stores  has  rapidly  increased  during  the  last  few  years. 
The  older  plan  was  to  use  the  basement  as  a  storage  place 
for  goods,  but  this  is  giving  way  very  generally  in  the  larger 
stores  to  the  ''bargain  basement,"  the  "economy  basement," 
or  the  ''subway  store"  idea.  So  far  has  this  gone  that  there 
is  hardly  a  large  department  store  of  any  consequence  but  has 
at  least  one  basement  in  use  for  displaying  and  selling  goods, 
and  a  few  of  the  very  largest  and  most  modern  stores  have 
two  basements,  one  under  the  other,  thus  utilizing  for  mer- 
chandising purposes  a  space  upwards  of  25  feet  below  the 
street  level. 

There  has  always  been  some  difficulty  in  getting  people  to 
go  to  the  basement  for  goods,  hence  merchants  commonly  use 
'*bargains"  or  other  inducements  to  draw  them  there.  Fre- 
quently the  entrance  to  the  basement  from  the  first  floor  is 
placed  at  a  point  of  considerable  distance  from  the  main  build- 
ing entrances,  making  it  necessary  for  customers  to  cross  the 
main  floor,  and,  therefore,  to  pass  by  much  of  the  main  floor 
goods  displays  before  getting  to  the  place  where  the  tempting 
bargains  are  to  be  had.  In  other  cases  people  are  attracted  to 
basement  departments  by  direct  entrances  from  the  street. 
Modern  stores  must  be  planned  to  make  the  sales  of  goods 


easy,  and  to  increase  the  sales  wherever  possible  in  such  ways 
as  these. 

The  Upper  Floors. — Upper  stories  offer  the  same  objec- 
tion as  the  basement,  namely  the  difficulty  of  getting  cus- 
tomers to  go  there.  Good  comfortable  stairways,  capacious 
elevators,  and,  more  recently  the  use  of  esculators  have  been 
introduced  to  make  travel  from  the  ground  floor  to  other  parts 
of  the  store  easy  and  attractive  to  customers. 

As  the  height  from  the  ground  floor  increases,  the  difficulty 
of  getting  customers  also  increases.  A  two-story  store  with 
a  basement  may  be  able  to  get  along  with  stairways  only, 
but  this  seems  to  be  about  the  limit  for  foot  travel.  The  use 
of  elevators  even  in  this  case  adds  to  the  number  of  customers 
who  go  beyond  the  first  floor.  Beyond  the  second  floor,  how- 
ever, either  elevators  or  escalators  seem  to  be  absolutely  ne- 
cessary in  most  towns,  and  for  the  second,  third,  and  fourth 
floors  in  large  city  stores  the  escalator  seems  to  do  better  than 
the  elevator.  For  floors  above  the  fourth,  the  elevators  serve 
the  best.^  An  investigation  on  the  comparative  merits  of 
escalators  and  elevators,  as  reported  by  a  concern  that  makes 
and  sells  both  classes  of  apparatus,^  showed  that  in  a  certain 
store  having  escalators,  53  per  cent  of  the  people  who  entered 
the  store  circulated  above  the  ground  floor,  while  in  other 
stores  served  only  by  stairways  and  elevators,  only  28  per  cent 
traveled  above  the  ground  floor. 

Estimating  Floor  Value. — The  value  of  a  floor  in  a  build- 
ing is  not  entirely  dependent  upon  the  number  of  people  who 
come  to  it.  The  ground  floor  is  likely  to  have  a  larger  pro- 
portion of  shoppers,  or,  rather,  sight-seers,  than  any  other 
floor.    While  the  store  must  aim  to  interest  and  to  sell  goods 

^  Ring,  R.   S.,  "The  Escalator  for  Department  Stores,"  Archit.  &  Bldg.,  44:509, 
»  Otis  Elevator  Company. 


208 


ECONOMICS  OF  RETAILING 


M 


i    1 


to  as  many  of  such  persons  as  possible,  still  a  large  number  of 
these  do  not  buy.  Floors  other  than  the  ground  floor  are 
likely  to  be  visited  by  a  larger  proportion  of  bona  fide  cus- 
tomers for  merchandise.  The  average  person  who  takes  the 
trouble  to  come  to  a  third  or  fifth  floor  is  likely  to  have  some 
definite  want  in  mind  that  the  store  has  a  good  chance  to 
satisfy.  But  in  spite  of  these  qualifications,  the  ground  floor 
is  far  more  valuable  than  any  other. 

Apportioning  Floor  Rent.— The  apportionment  of  the  total 
rent  to  the  various  floors  in  actual  practice  depends  largely 
upon  circumstances,  but  in  all  cases  that  the  writer  has  ob- 
served, a  much  larger  proportion  has  been  charged  to  the 
first  floor  than  to  any  other.  The  following  figures  obtained 
in  part  from  the  service  department  of  the  Dry  Goods  Econ- 
omist, and  in  part  from  figures  given  to  the  writer  by  execu- 
tives of  two  of  the  largest  retail  concerns  in  the  country,  are 
probably  typical. 

Table  Showing  Apportionment  of  Rent  of  Building 

TO  the  Various  Floors^ 


Store  No.       i       2      3      4      5       6      7      8  9  10 

Basement    35     .,     25     ..      15     10     10     15  i2><  15 

Main  Floor  65     65     50     60     45     45     50    40  35  35 

hecond   Floor 35     25     30     25     25     20     20  20  20 

Third    Floor 10     15     10     10     15  15  10 

Fourth   Floor 10     10     10  10  10 

Fifth   Floor yi/^  cj 

Sixth    Floor "c; 


As  indicated  by  the  table,  the  rental  value  of  stories  above 
the  first  decreases  rapidly  for  retail  purposes.  This  brings 
us  to  a  question  of  interest  in  the  larger  cities,  namely,  how 

'  The  total  number  of  floors  in  each  store  is  shown  by  number  of  percentages 
given.  The  first  store  consists  of  ground  floor  and  basement,  the  second  of  first  and 
second   floors,  and   so  on. 


LOCATION  AND  RENT 


209 


high  up  will  retail  customers  go.  A  recent  writer^  has  stated 
that  nine  stories  above  the  ground  with  two  basements  beneath 
probably  represents  the  profitable  limits.  Other  stores  have 
gone  somewhat  higher  but  with  what  success  is  not  known. 
This  problem  is  of  interest,  of  course,  only  where  rents  are 
very  high,  and  additional  space  very  difficult  to  get.  Two 
stories  and  a  basement  are  probably  the  profitable  limits  for 
most  stores  in  towns  under  25,000  population;  and  in  larger 
cities,  under  most  conditions,  five  or  six  stores  probably  repre- 
sent working  limits.  The  difficulties  of  getting  large  numbers 
of  customers  up  and  down  quickly  are  too  great  for  further 
upward  expansion.  Except  where  space  is  very  valuable,  and 
crowds  are  great,  the  expense  of  running  elevators,  and  the 
rent  of  the  space  occupied  by  elevators  and  stairways,  more 
than  counterbalance  the  earnings  of  the  upper  floors. 

Use  of  Mezzanine  Floors  and  Balconies. — Additional  i1oor 
space  is  very  frequently  obtained  by  building  a  balcony 
or  mezzanine  floor  part  way  around  the  main  floor 
room.  This  can  be  done  only  when  the  ceiling  is  high  enough. 
Modern  store  architecture  nearly  always  provides  such  height 
for  the  first  floor,  and  the  mezzanine  floor  is  often  a  part  of 
the  original  construction.  Some  stores  use  this  sort  of  struc- 
ture to  great  advantage,  generally  for  goods  that  might 
otherwise  be  displayed  and  sold  either  on  the  second  floor,  or 
in  the  basement,  as,  for  instance,  bargains,  or  else  those  goods 
that  people  determine  in  advance  that  they  need  and  come  to 
the  store  for  the  express  purpose  of  buying. 

Many  small  stores  find  the  use  of  balconies  both  con- 
venient and  profitable,  but  mistakes  in  their  structure  are  so 
often  made  that  their  full  value  is  seldom  realized.  One  error 
frequently  made  in  building  a  balcony  is  to  leave  it  with  an  un- 
finished appearance,  just  as  if  it  were  so  much  staging.     To 

*  Architectural  Record.   12:2^7. 


II 


I 


:J    \i 


:    I 


210 


ECONOMICS  OF  RETAILING 


some  customers  it  hardly  looks  safe  to  walk  on.  It  lacks  the 
appearance  of  stability  and  solidity.  Other  shortcomings 
noted  frequently  include — lack  of  provision  for  proper  light, 
poor  ventilation,  and  poor  or  uncomfortable  stairways. 
Where  these  evils  are  remedied,  the  balcony  has  proved  a 
money-making  addition  to  many  stores. 

Using  Space  Effectively. — Whatever  the  demands  may  be 
for  more  floor  space,  there  is  present  always  the  problem  of 
using  in  an  effective  way  space  already  controlled.  High 
rents  force  this  problem  to  the  front.  Store  arrangement  is 
a  science  in  itself,  a  science  that  is  only  imperfectly  understood 
by  most  merchants.  The  arrangement  of  the  store  is  often 
the  factor  that  makes  or  breaks  its  success.  It  calls  for  con- 
sideration of  a  multitude  of  details  among  which  only  a  few 
of  the  most  important  can  be  mentioned.  Provision  must  be 
made  for  receiving,  storing,  and  handling  the  goods;  the  ma- 
chinery, engines,  and  heating  plant  must  be  located  properly; 
and  precautions  against  fire  must  be  taken  at  every  step. 
The  heating,  and  in  larger  stores,  the  cooling  plants  should 
receive  most  careful  attention.  Maintaining  a  uniformly  com- 
fortable temperature,  regardless  of  weather  conditions,  is  es- 
sential. Provision  must  be  made  also  for  proper  ventilation 
of  all  parts  of  the  store  in  order  to  make  it  pleasant  for  cus- 
tomers and  a  good  workroom  for  salespeople. 

Light  of  the  right  amount  and  kind  should  be  provided  for 
each  department  of  goods.  This  means  brilliant  light  for  such 
departments  as  jewelry,  glassware,  and  chinaware,  and  sub- 
dued lights  for  such  departments  as  furniture,  and  so  on. 
Provision  must  also  be  made  for  easy  and  thorough  cleaning 
of  all  parts  of  the  store.  Employees  must  be  accommodated 
with  locker  space,  lunch  room,  rest  rooms,  toilet  rooms,  and 
often  with  recreation  space.  The  store  must  provide  ample 
room  for  customers,  spacious  aisles,  large  stairways  and  com- 


f" 


LOCATION  AND  RENT 


211 


modious  elevators.  The  entrances  must  be  made  large  enough 
to  let  crowds  in  and  out  easily.  The  store  should  be  arranged 
so  as  to  make  it  very  easy  for  customers  to  get  from  one  point 
to  another  in  the  store.  Accommodations  for  customers,  such 
as  waiting  rooms,  reading  and  writing  rooms,  telephone 
booths,  and  toilets  must  be  provided.  Places  and  fixtures  for 
displaying  and  selling  merchandise,  and  for  making  change, 
wrapping  parcels,  and  so  forth,  must  receive  prime  considera- 
tion. Space  is  required  for  assembling  the  goods  that  are  to 
be  delivered,  also  for  the  disposal  of  refuse  and  waste. 

Allocating  Goods. — When  we  come  to  the  goods,  the  de- 
partments must  be  located  so  as  to  draw  the  most  trade.  The 
goods  that  sell  themselves  must  be  located  where  they  will 
help  to  attract  attention  to  other  goods.  Goods  not  in  cus- 
tomers' minds  must  be  located  where  they  can  be  seen.  The 
merchandise  must  be  arranged  in  groups  that  permit  of  mak- 
ing a  sale  of  more  than  one  article.  Goods  that  go  together  in 
actual  use  are,  therefore,  generally  grouped  together.  The 
man  who  comes  in  to  buy  a  collar  must  see  displays  of  neck- 
wear, shirts,  handkerchiefs,  and  gloves,  and  these  departments 
should  lead  easily  to  hats,  clothing,  shoes,  and  so  on.  If  the 
store  is  small  and  the  number  of  people  who  come  in  com- 
paratively great,  the  departments  must  be  so  arranged  as  to 
scatter  the  crowd  equally  over  all  parts  of  the  store  by  placing 
departments  making  the  most  numerous  sales  as  widely  apart 
from  each  other  as  possible. 

The  so-called  ''non-productive"  departments  of  the  store, 
such  as  the  offices  and  places  for  keeping  records  and  accounts, 
must  be  located  in  odd  spaces  not  taking  up  room  valuable 
for  sales  purposes.  This  may  mean  placing  them  in  the  back 
part  of  the  store,  on  a  balcony  up  out  of  the  way,  or  on  an  up- 
per floor  where  space  is,  as  w^e  have  seen,  much  less  valuable 
for  selling  work. 


I 


212 


ECONOMICS  OF  RETAILING 


i 


Finding  Storage  Room.— Storage  place  for  the  surplus 
stocks  of  goods  is  always  a  problem  wherever  rents  are  high. 
Special  equipments  are  sometimes  built  permitting  a  maximum 
of  storage  under  counters  and  on  shelves.  For  the  bulk  of  the 
surplus  stock,  an  upper  floor  is  the  usual  solution,  with  an  occa- 
sional use  of  a  storage  building  in  a  low  rent  part  of  the  town. 
The  distant  warehouse  may  have  the  advantage  of  low  rent, 
but  it  also  has  the  disadvantage  of  high  expense  in  transferring 
goods  quickly  to  the  main  store.  All  of  these  matters  must 
be  considered. 

Quick  Service— Quick  Turnover  of  Goods.— If  the  profits 
of  the  store  depend  upon  quick  sales  and  large  volume,  it  is 
clear  that  everything  should  be  done  to  handle  crowds  of 
people  and  supply  their  demands  as  adequately  and  as  quickly 
as  possible.  Prospective  customers  in  such  stores  must  be 
helped  by  the  arrangement  of  the  store  and  by  the  displays  as 
well  as  by  salespeople.  Open  counters,  easily  read  price  tickets, 
printed  statements  about  the  goods,  and  similar  devices  assist 
in  this  direction.  The  making  of  change  and  the  wrapping 
of  parcels  should  be  reduced  to  such  system  as  will  save  every 
possible  second  of  time.^  Salespeople  need  to  show  the  goods 
in  the  quickest  possible  ways  compatible  with  good  salesman- 
ship, and  to  be  prepared  to  tell  in  short,  pithy,  clear-cut  sen- 
tences the  things  that  customers  are  likely  to  want  to  know 
about  the  goods.  Above  all,  they  need  deft  hands,  quick  eyes, 
ready  minds,  and  unfailing  patience  and  good-will  for  e\ery 
individual  in  the  passing  throng. 

Arranging  Attractive  Displays.— In  addition  to  all  these 
problems  of  arrangement  and  salesmanship  and  of  even 
greater  importance,  is  the  problem  of  making  the  store  at- 
tractive in  all  its  details.     In  this  respect  a  store  differs  from 

»  See  Appendix  D,  "Methods  of  Handling  Cash,  Credits  and  Sold  Goods." 


LOCATION  AND  RENT 


213 


a  manufacturing  plant.  The  latter  may  be  planned  solely  in 
the  interests  of  efficiency  of  production,  but  the  store  must  be 
planned  to  please  customers  as  well  as  to  facilitate  the  hand- 
ling of  goods. 

A  great  deal  of  attention  needs  to  be  given  to  arranging 
the  store  display  so  as  to  make  it  most  effective.  Goods  must 
be  placed  where  they  can  be  seen.  The  principle  is  that  the 
display  of  merchandise  should  fall  largely  within  the  average 
line  of  vision.  Experiments  need  to  be  performed  to  deter- 
mine just  what  this  is,  but  it  may  be  safely  stated  here  that 
most  people  on  passing  through  a  store  notice  goods  only 
when  they  are  located  more  than  two  feet  and  less  than  seven 
feet  above  the  floor.  This  means  that  the  display  must  be 
planned  within  this  line  or  belt  of  vision  five  feet  wide.  Dis- 
play above  or  below  these  limits  seems  either  to  remain  un- 
noticed or  to  confuse  the  customer.  As  a  rule,  whatever  is 
done  above  and  below  these  limits,  must  be  for  purely  decora- 
tive purposes,  or  to  serve  as  a  background  for  the  regular 
goods  that  are  displayed  within  the  line  of  vision. 

Within  this  line  of  vision  there  are  possibilities  for  great 
art  in  arranging  the  display  of  goods.  For  example,  one  may 
seek  to  get  the  colors  of  the  goods  into  appealing  relation- 
ships, to  get  the  forms  of  the  goods  into  harmonious  groups, 
and  to  get  an  effect  that  is  not  only  pleasing  to  the  eye  but 
attractive  to  the  customer's  pocketbook.  The  one  who  ar- 
ranges the  store's  displays  has  the  possibility  of  exercising 
talent  similar  to  that  of  a  painter  or  sculptor,  but  his  combina- 
tions must  differ  from  the  picture  or  sculptured  group  in  this 
respect,  that  the  details  rather  than  the  ensemble  must  stand 
out  clearly  to  catch  the  customer's  attention.  Art  is  in- 
troduced to  set  off  the  goods  effectively  so  that  they  may 
appeal  to  purchasers  and  be  sold.  Order,  symmetry,  har- 
mony, and  other  fundamental  principles  of  art  are  essential 
to  good  store  display,  but  the  art  must  be  for  business'  sake. 


I 


214 


ECONOMICS  OF  RETAILING 


Everything  beyond  the  direct  Hne  of  vision  in  a  store  is  to  the 
customer  what  the  frame  and  the  background  of  a  painting 
are  to  the  painter  and  to  the  one  who  looks  at  the  painting. 
This  frame  or  background  needs  to  be  in  keeping  with  the 
central  object,  harmonious  yet  subdued,  not  attractive  in  itself, 
but  helping  to  make  the  goods  displayed  as  attractive  as  their 
true  natures  will  permit. 

Advantages  of  Standard  Equipment.— Much  valuable 
space  in  a  store  can  be  saved  in  many  cases  by  using  standard 
sizes  in  all  equipment,  such  as  cases,  cabinets,  and  cartons 
for  the  goods,  counters  and  shelves  of  the  right  width  and 
height,  the  right  width  of  aisles  for  customers  on  one  side  and 
for  clerks  on  the  other  side.  Common  obstructions  such  as 
pillars,  angles  in  the  walls,  stairways  and  so  on,  present  diffi- 
cult problems  in  store  planning  that  must  be  solved  according 
to  the  best  judgment  of  the  manager. 

Fixtures  that  Economize  Space.— Recently  much  has  been 
done  in  the  way  of  devising  fixtures  that  economize  space. 
The  portable  and  sectional  types  of  store  apparatus  and  equip- 
ment are  aimed,  partly  at  least,  to  aid  in  this  direction.  Special 
cabinets  have  been  devised  to  hold  a  maximum  amount  of 
goods  in  a  minimum  amount  of  space  for  such  merchandise 
as  gloves,  patterns,  laces,  embroideries,  trimmings,  hosiery, 
shoes,  hats,  and  clothing  of  all  kinds.  Stands  and  frames 
using  a  comparatively  small  amount  of  floor  space  have  been 
devised  to  hold  stocks  of  rugs,  curtains,  pictures,  picture 
frames,  tools,  oilcloths,  garments,  and  many  other  things. 
Shelving  in  a  modern  store  is  built  so  as  to  waste  no  space. 
The  distance  between  shelves  corresponds  exactly  to  the  height 
of  the  cartons,  packages,  cans,  or  other  forms  in  which  goods 
are  contained.  The  shelving  itself  is  made  of  no  thicker  mate- 
rial than  is  necessary  to  support  the  burden.  Upright  supports 


LOCATION  AND  RENT 


215 


J 


of  the  shelves  are  arranged  in  such  a  way  as  to  take  up  very 
little  space.  Other  fixtures  are  similarly  planned.  But  as 
already  noted,  every  detail  is  planned  with  its  artistic,  as  well 
as  its  economic  possibilities  in  view.  Where  the  two  con- 
flict seriously,  the  economic  must  give  way  in  part  at  least 
to  the  artistic.  The  walls  and  space  beneath  the  floors  is 
used  for  heating  flues,  air  shafts,  as  well  as  electric  con- 
duits. A  bright  country  storekeeper,  who  must  use  a  stove 
to  heat  his  store,  runs  the  smoke  pipe  directly  down  through 
the  floor  and  underneath  it  until  it  reaches  the  wall.  Here 
it  is  allowed  to  rise,  and  the  draught  seems  to  be  perfectly 
satisfactory.  In  this  way  he  has  eliminated  the  unsightly 
stove  pipe  and  saved  space.  Pneumatic  tubes,  cash  and  bundle 
carriers,  wiring,  and  other  devices  are  not  permitted  to  take 
up  too  much  valuable  selling  space. 

A  virtual  saving  in  space  is  accomplished  by  careful  stock 
keeping  and  buying  methods.  The  quantity  of  each  article 
kept  on  hand  is  reduced  to  a  minimum,  thus  saving  shelf  or 
storage  room,  and  the  variety  is  increased  by  the  addition  of 
other  desirable  lines.  This  involves  buying  often,  perhaps 
daily,  and  a  careful  watching  of  the  state  of  the  stock  so  as 
to  prevent  running  out,  but  it  economizes  space. 

Attracting  Trade;  Advertising. — Of  the  methods  used  in 
attracting  trade  we  can  say  but  little  here.  The  statement  is 
sometimes  made  that  less  money  need  be  expended  for  adver- 
tising in  a  good  location  than  in  a  poor  one.  This  is  probably 
true  if  one  seeks  to  get  the  same  volume  of  business  in  both 
cases.  If  it  is  necessary  to  expend  a  certain  sum  of  money 
for  publicity  to  get  a  certain  amount  of  business  in  a  poor 
location,  it  is  clear  that  the  same  volume  can  be  obtained  in  a 
better  location  with  a  smaller  expenditure  for  advertising. 
This  does  not  mean  that  merchants  spend  less  for  advertising 
in  the  better  locations.     The  reasons  for  advertising  are  as 


2l6 


ECONOMICS  OF  RETAILING 


Strong  in  the  better  location  as  they  are  in  the  poorer,  the 
object  in  each  case  being  to  increase  to  the  maximum  the  vol- 
ume of  sales.  Hence  one  does  not  ordinarily  find  a  diminu- 
tion of  advertising  outlay,  or  even  the  percentage  of  advertis- 
ing to  sales  decreasing  on  passing  from  poorer  to  better  loca- 
tions. The  principle  governing  advertising  as  well  as  the  use 
of  any  other  factor  is  its  possibility  of  bringing  in  a  return 
more  than  equal  to  the  expenditure  or  outlay.  It  is  entirely 
possible  that  in  a  great  number  of  cases,  a  larger  proportion  of 
advertising  expense  will  be  found  profitable  in  a  good  rather 
than  in  a  poor  location.  In  the  poor  location  2  per  cent  of  sales 
may  be  found  the  profitable  limit,  while  4  per  cent  of  sales 
may  be  nearer  the  limit  in  the  better  locations.  This  is  a 
matter  upon  which  no  rule  can  be  given.  Each  manager 
must  work  out  the  possibilities  of  his  own  business  and  the 
means  of  promoting  it. 

Window  Displays. — In  recent  years  a  great  deal  of  prog- 
ress has  been  made  in  this  country  in  the  matter  of  window 
displays.  Frequently  increases  in  business  are  directly  trace- 
able to  the  introduction  of  better  store  fronts,  show  windows, 
and  better  window  trimming.  The  tendency  seems  to  be  to 
use  for  display  purposes  every  available  inch  of  frontage.  In 
some  cases  this  display  space  is  increased  by  recessing  the 
front,  building  it  in  the  form  of  a  vestibule  or  arcade,  and  by 
constructing  island  display  cases.  Much  of  this  work  done  by 
modern  stores,  particularly  in  the  larger  cities,  is  costing  a 
great  deal  of  money,  but  it  is  held  by  all  that  such  expendi- 
tures are  well  worth  while.  The  show  window  depends  for 
its  value  upon  the  number  of  people  who  pass  by,  but  there 
is  hardly  a  town  so  small,  or  crossroads  store  so  insignifi- 
cant, as  to  make  unnecessary  or  valueless  the  trimming  of 
windows. 

Some  idea  of  the  value  of  show  windows  may  be  gained 


I 


LOCATION  AND  RENT 


217 


from  the  fact  that  a  Chicago  department  store  having  twenty- 
one  windows  charges  its  window  trimming  department  nearly 
$500  per  day,  distributed  as  follows : 


2  Island      windows 

at 

$ 

100.00 

per  day 

2  Windows 

(( 

20.00 

8  Windows 

« 

16.00 

2  Windows 

ft 

15.00 

5  Windows 

tt 

10.00 

I   Window 

ti 

9-50 

I  Window 

u 

5.00 

These  amounts  are  in  turn  charged  to  the  departments 
of  the  store  using  the  respective  windows.^  A  large  de- 
partment store  in  Boston  charges  its  fifty  windows  the  sum 
of  $306.00  per  day.^  These  sums  of  money  represent  the 
windows'  burden.  They  must  earn  at  least  this  much  for 
the  store. 

A  large  department  store  in  Chicago  is  reported  to  ex- 
pend over  $150,000  per  year  in  the  trimming  of  its  win- 
dows. Six  hundred  Chicago  druggists  outside  of  the  loop 
district  make  a  charge  of  from  $4  to  $15  per  window  per 
week  for  the  privilege  of  displaying  patent  and  proprietary 
goods.  Druggists  and  others  within  the  loop  district  get  as 
high  as  $100  per  week  from  demonstrators  who  use  this 
means  of  attracting  attention  to  their  goods.  Figures  for 
the  loop  district  of  Chicago  are,  however,  abnormal  and  in 
no  way  comparable  with  average  store  conditions.  The  figures 
of  the  Chicago  druggists  outside  the  loop  come  nearer  repre- 
senting average  values  in  most  towns  of  10,000  population 
and  up.  In  towns  smaller  than  this  the  values  of  the  show 
windows  are  somewhat  less.  A  recent  statement  by  one  who 
has  had  opportunities  for  wide  observation,  is  that  the  average 

'  The  figures  are  for  the  Chas.  A.  Stevens  Store,  and  are  taken  from  the  Mer- 
chants' Record  and  Show  Window,  April,   1915. 

^  Wm.  Filene's  Sons  Company,  Boston.  Figures  given  in  Dry  Goods  Economist, 
May  24,  1913. 


2l8 


ECONOMICS  OF  RETAILING 


value  of  display  windows  the  country  over  is  not  far  from 
$io  per  week.® 

Value  of  Display  Space. — The  front  part  of  the  store  is 
the  most  valuable  in  all  ordinary  cases.  The  window  space 
ranks  first  and  highest,  the  departments  nearest  the  entrance 
come  second,  and  so  on  back.  This  is  true  largely  because 
it  is  so  difficult  to  get  customers  who  come  to  the  store  to 
circulate  far  beyond  the  entrance.  A  manager  of  a  department 
store  has  informed  the  writer  that  nearly  half  of  the  people 
who  enter  his  store  never  go  beyond  a  radius  of  50  feet  from 
the  main  entrance,  and  this  in  spite  of  the  fact  that  he  has 
arranged  his  departments  so  as  to  attract  trade  farther  back. 
This  case  is  not  given  as  typical  but  rather  to  illustrate  that  the 
space  on  a  store  floor  is  not  equally  valuable,  hence  the  rent 
burden  should  not  be  distributed  among  all  departments  di- 
rectly on  the  basis  of  the  number  of  square  feet  occupied. 

Distributing  Rent. — Various  methods  of  distributing  the 
rent  charge  for  a  floor  are  practiced.  In  some  cases  this 
charge  is  fixed  in  proportion  to  the  square  feet  occupied,  in 
others  to  the  gross  sales  of  the  department,  in  others  to  the 
gross  profits,  in  still  others  the  rent  charge  is  prorated  on  the 
basis  of  accessibility  to  customers,  and  in  some  stores  several 
or  all  of  these  conditions  are  considered. 

Taxation  Values. — It  may  be  of  interest  in  this  connection 
to  note  what  methods  experts  use  in  determining  for  purposes 
of  taxation  the  relative  values  of  the  different  parts  from 
front  to  back  of  business  real  estate.  Space  will  permit  but  a 
brief  statement.  There  are  several  assessment  systems  in 
actual  use,  differing  somewhat  in  detail,  and  in  methods  of 
computing  the  values,  but  all  aim  at  the  same  thing — equit- 
able assessment  of  city  lots  of  varying  depths.     Among  these 


'C.  W.  Hurd  in  Printers'  Ink,  August  31,  1911. 


LOCATION  AND  RENT 


219 


systems  are  the  following:  The  Hoffman-Neill  rule,  the 
Lindsay-Bernard  rule,  the  Newark  plan,  and  the  Cleveland 
plan,  also  called  the  Somers  rule.  In  all  of  these  systems, 
excepting  the  Lindsay-Bernard  rule,  the  standard  lot  is  con- 
sidered as  100  feet  deep.  The  value  of  lots  of  depths  differ- 
ing from  the  standard  loo-foot  lot  has  been  worked  out  in 
each  of  these  systems.  To  illustrate,  a  few  figures  will  be 
given. 

Value  of  City  Business  Lots  of  Different  Depths 

Based  on  a  Percentage  of  the  Value  of  a  Standard 
Lot  One  Hundred  Feet  Deep  ^ 


Feet 

Hoffman-Neill 

Newark 

Cleveland  or 

Deep 

Rule 

Plan 

Somers  Plan 

100 

100.00% 

100.00% 

100.00% 

I 

6.76 

3.1 

5 

17-32 

14.35 

10 

25.98 

25 

25.0 

20 

38.99 

41 

41.0 

30 

4947 

54 

540 

40 

58.49 

64 

64.0 

50 

66.67 

72 

72.5 

60 

74.20 

80 

79-5 

70 

81.70 

86 

85.6 

80 

8773 

91 

90.9 

90 

94.01 

96 

95-6 

TOO 

100.00 

100 

1 00.0 

125 

109.00 

109 

109.0 

150 

117.00 

121 

1 1 5.0 

200 

130.00 

133 

122.0 

See 


Al 


Report  of   Department  of  Taxes  and  Assessments  of  New   York   City     loi? 
Appendix.  ^  "*' 

Somers    "Unit  System  of  Realty  Valuation,"  Cleveland. 

Bernard's   "Some   Principles  and   Problems   of   Real    Estate   Valuation  "   Bal- 
timore. * 


so.   see- 


Rawles,    Wm.    A.,    "Classification    of    Land    for    Purposes    of    Taxation  "    an 
address  delivered  before  a  conference  on   taxation   in  Indiana,   held   Feb- 
ruary 5  and  6,   1914;  published  in  Indiana  University  Bulletin,  Vol    Xll 
No.  4,  pages   137-1  S3-  '         '  ' 


220 


ECONOMICS  OF  RETAILING 


Note  should  be  taken  that  under  all  three  rules  the  value 
of  the  first  lo  feet  is  considered  to  be  worth  25  per  cent  of 
the  total  100  feet  in  the  standard  lot.  The  first  20  feet  has 
a  value  in  all  these  rules  of  about  40  per  cent  of  the  total. 
The  front  half  of  the  lot,  that  is  the  first  50  feet  nearest 
the  street,  is  considered  worth  two-thirds  of  the  whole  lot 
in  one  rule  and  more  than  that  in  the  other  two.  Now  what 
is  true  for  the  lot  is  true  for  floor  space,  and  if  these  per- 
centages are  fairly  representative  for  the  one  they  are  for 
the  other.  It  is  not  urged  that  these  percentages  should  be 
used  by  merchants  in  their  store  without  qualification.  They 
are  simply  given  here  as  an  illustration  of  the  sort  of  studies 
that  need  to  be  worked  out  in  the  various  kinds  of  retail  busi- 
nesses, studies  that  will  result  in  accurate  figures  on  such  a 
problem  as  the  distribution  of  rent  over  floor  space. 

Other  "Intensive  Cultivation"  Methods. — Intensive  use  of 
location  must  include  many  other  things,  only  a  few  of  which 
can  be  mentioned  in  this  outline.  High  rents  force  store 
managers  to  exert  every  means  to  bring  people  to  the  store 
and  to  increase  sales.  Advertising  has  been  mentioned  already 
as  one  of  these  means.  Perhaps  under  this  head  should  be 
included  such  features  as  ''special  sales,"  "cut  prices,"  ''loss 
leaders,"  and  special  service  to  people  who  come  to  the  store 
— service  in  the  form  of  music,  moving-picture  shows,  lec- 
tures, art  exhibits,  demonstrations,  lunch  and  refreshment  de- 
partments, news  bulletins,  baseball  score  boards,  etc.  All  of 
these  tend  to  make  the  store  a  center  of  interest  to  shoppers, 
both  male  and  female.  The  modern  store  is  almost  as  much 
an  amusement  place  as  it  is  a  merchandising  establishment,  and 
there  are  many  people  who  prefer  shopping  to  most  regular 
entertainments.  This  is  the  result  of  the  competition  for  the 
patronage  of  the  public  in  central,  high  rent  locations. 

Something  further  can  sometimes  be  accomplished  by  en- 


LOCATION  AND  RENT 


221 


couraging  the  use  of  the  telephone  for  all  who  cannot  come 
to  the  store,  the  establishment  of  a  mail-order  department, 
and  promotion  of  sales  by  various  forms  of  personal  solicita- 
tion, ranging  from  sending  letters  to  customers  to  sending  a 
personal  representative  from  house  to  house.  All  these 
methods  help  to  increase  the  sales  and  help  to  reduce  that 
part  of  the  overhead  expense  due  to  the  rent  item. 

Finally,  and  most  important,  as  a  means  of  keeping  ahead 
of  the  high  rent  charge  is  the  employment  and  training  of 
competent   salespeople.      Contrary   to   the   opinion   of   many, 
the   importance  of   good   salespeople   does   not   diminish   on 
passing  from  poorer  to  better  locations.      In  a   good   loca- 
tion the  salesperson's  efforts  are  usually  specialized  in  selling 
some  one  particular  line,  or  part  of  a  line,  or  to  a  particular 
class  of  customers.     On  the  whole,  each  salesman  in  such 
a  location  has  a  greater  opportunity  for  exercising  his  abil- 
ity.    Consider  shoe  selling  as  an  example.     Salesmen  aver- 
age volumes  of  sales  ranging  from  $2,000  to  $10,000  per  year 
in  small  towns.     The  average  in  good  locations  in  the  large 
cities  is  over  $16,000  per  year.^°     In  the  latter  locations  there 
is  an  opportunity  to  sell  more— but  there  is  also  the  oppor- 
tunity to  make  more  mistakes.     Quick,  intelligent  service  and 
accurate  salesmanship  are  essentials  for  such  locations  as  much 
as  for  any  other,  and  it  is  among  such  stores  that  one  finds 
the  unusual  salesman — the  shoe  salesman,  for  example,  who  is 
able  to  average  sales  of  $30,000  or  more  per  year. 

The  importance  of  salesmanship  has  been  discussed  in 
Chapter  VI.  It  is  simply  mentioned  here  to  point  out  its 
relationship  to  the  location  factor  of  a  store. 


10 


Bulletin  No.   i.  Bureau  of  Business  Research,  Harvard  University,  pages  13-13. 


!l 


HOW  RETAIL  PRICES  ARE  FIXED 


223 


CHAPTER  XIV 

HOW  RETAIL  PRICES  ARE  FIXED 

Charging  "What  the  Traffic  Will  Bear."— The  aim  of  the 
retailer,  as  well  as  of  all  others  who  engage  in  business,  is 
to  realize  a  profit  from  his  operations.  His  success  is  meas- 
ured very  largely  by  the  amount  of  profit  that  he  makes. 
Prices,  therefore,  tend  to  be  fixed  at  the  point  that  will  bring 
the  highest  net  return.  In  other  words,  retail  dealers  charge 
'Svhat  the  traffic  will  bear." 

But  while  the  retailer  places  the  price  mark  on  the  goods, 
it  would  not  be  correct  to  assume  that  he  makes  the  price, 
except  in  so  far  as  he  interprets  correctly  all  of  the  influ- 
ences affecting  values  in  his  community  and  makes  it  in  ac- 
cordance with  his  judgment  of  those  influences.  Price,  as 
we  shall  see,  is  the  resultant  of  many  forces  operating  in 
various  ways  and  with  various  degrees  of  strength. 

Factors  of  Retail  Price;  Costs. — Chief  among  the  forces 
or  factors  that  influence  retail  prices  are  the  costs  of  the 
goods,  the  costs  of  selling,  the  desirability  of  the  goods  from 
the  standpoint  of  the  consumer,  the  competition  of  other  re- 
tailers, custom  or  habit,  personal  salesmanship,  and  an  ethical 
element  or  tendency  to   fair  play   among  both  buyers   and 

sellers. 

The  costs  of  the  goods  and  the  costs  of  selling  set  the 
lower  limit  below  which  the  selling  price  may  not  fall  with- 
out loss  to  the  store.     However  severe  the  competition  may 
•be,  whatever  the  policies  of  selling  adopted,  the  retailer  must 
get  all  of  his  costs  back  or  fail  in  business.     For  purposes 

222 


of  clearance  or  advertising  some  goods  may  be  sold  below 
the  cost  point,  but  deficits  so  incurred  must  be  made  up  in 
the  general  sales  levels.     It  is  obvious,  then,  that  the  retailer 
should  know  his  costs  accurately.    An  estimate  made  too  high 
may  lead  him  to  think  in  cases  of  keen  competition  that  all 
is  over  with  him  before  he  is  really  in  danger.     On  the  other 
hand,  costs  estimated  lower  than  they  really  are  may  lead  to 
a  feeling  of  security  where  danger  really  exists.    Nearly  every 
printed  article  that  has  appeared  during  the  last  five  years 
on  this  subject  has  either  taken  for  granted  or  has  presented 
facts  to  show  that  a  great  many  retailers  do  not  actually  know 
what  their  costs  are,  and  that  they  have  operated  their  business 
upon  guesses  or  estimates  that  were  in  many  instances  far 
from  correct.     Many  examples  of  merchants  who  believed 
that  they  were  making  good  safe  margins  of  profit  but  who 
were  really  moving  towards  bankruptcy  because  of  too  low 
estimates  of  costs  have  been  cited.    A  large  proportion  of  fail- 
ures in  retail  stores  are,  no  doubt,  due  to  this  cause.     It  is 
certain  that  a  very  large  proportion  of  the  retail  merchants 
who  are  thrown  into  bankruptcy  have  very  imperfect  account- 
ing systems  or  records  of  their  business. 

Other  Price  Considerations.— But  costs  are  not  the  only 
considerations  in  fixing  prices.  It  is  even  held  by  many  that 
price  fixing  based  upon  costs  would  be  neither  desirable  nor 
fair  in  all  cases.  When  the  producer  has  erred  and  has  ex- 
pended twice  as  much  in  making  an  article  as  he  should,  or 
when  the  dealer  has  mistakenly  paid  more  for  an  article  than 
others  could  obtain  it  for,  it  would  not  be  just  that  the  burden 
of  such  errors  should  be  passed  on  to  the  consumers,  nor 
would  it  be  passed  on  to  the  consumers  under  free  competition. 
Each  should  stand  the  losses  due  to  mistaken  judgment  or 
other  similar  mistakes  caused  by  himself.  On  the  other 
hand,  if  the  buyer  of  a  store,  or  the  producer  before  him,  were 


224 


ECONOMICS  OF  RETAILING 


able  to  bring  into  the  market  a  lot  of  goods  at  a  much  lower 
figure  than  normal  costs  of  production  and  distribution,  the 
consumer  has  not  thereby  earned  any  opportunity  to  enjoy 
those  goods  at  cost.  The  surplus  thus  produced  is  the  legiti- 
mate profit  or  reward  to  the  producer  or  to  the  buyer  for  his 
special  efficiency.  To  what  extent  such  cases  occur  in  every- 
day business  it  is,  however,  impossible  to  say. 

The  dealer  uses  his  knowledge  of  costs  only  in  determining 
the  lower  limit  of  profitable  selling.  The  exact  point  at 
which  the  price  shall  be  set  on  a  particular  article  must  be 
determined  by  other  considerations.  Costs  of  selling  serve 
merely  as  a  guide  as  to  what  the  retailer  shall  purchase  and 
as  to  what  the  upper  limits  of  his  purchase  prices  must  be. 
Knowing  his  costs  the  retailer  can,  to  a  large  extent,  elimi- 
nate unprofitable  lines  from  his  stock.  Thus,  while  serving 
only  as  a  guide,  the  knowledge  of  costs  is  a  most  important 
thing  to  the  retailer  who  wishes  to  succeed  in  business. 

Desirability  of  the  Article. — The  desirability  of  an  article 
to  the  customer  is  a  very  important  factor  in  price  fixing. 
It  is  because  people  want  goods  that  they  come  to  stores  for 
them  and  the  strength  of  their  wants  helps  to  determine  what 
they  will  pay  for  them.  It  may  be  the  usefulness,  the  beauty, 
the  uniqueness,  or  any  one  of  a  hundred  other  qualities  that 
appeals  to  the  customer,  but  whatever  it  may  be,  it  is  this 
desire  that  causes  the  customer  to  conclude  to  give  up  his 
money  and  whatever  other  goods  his  money  might  have 
bought,  in  order  to  possess  these  particular  goods. 

The  strength  of  demand  measured  by  the  amount  that 
customers  will  be  willing  to  pay  for  any  article  is  dependent 
upon  four  things : 

1.  The  strength  of  the  customer's  desire  for  it. 

2.  Possession  of  money  or  means  to  buy  it. 

3.  The  relative  strength  of  the  desire   for  this  article. 


HOW  RETAIL  PRICES  ARE  FIXED 


225 


compared  with  the  desires  the  customer  may  have 
for  other  articles  that  his  money  or  means  can  pur- 
chase for  him. 

4.  The  knowledge  of  what  this  article  or  similar  articles 
can  be  obtained  for  elsewhere. 

Intensity  of  Desire.-No  goods  could  be  sold  unless  cus- 
tomers desired  them.    Desires  must  be  taken  for  granted.     In 
fact,  all  human  beings  have  a  multitude  of  desires,  more  than 
most  of  them  can  ever  hope  to  have  satisfied.     The  best  that 
any  individual  can  do  is  to  satisfy  one  at  a  time  in  something 
like  the  order  of  intensity.     The   desire   for  any  particular 
article  in  the  customer's  mind  nearly  always  has  competin- 
desires  for  other  articles,  possibly  widely  different  in  nature" 
The  price  that  he  will  pay  for  any  given  article  measures  how 
many  of  the  other  articles  he  is  willing  to  sacrifice.     That 
is  to  say,  in  buying  any  article,  a  person  does  not  simplv 
give  up  his  money  but  he  gives  up  the  opportunity  to  get 
such  other  goods  as  his  money  would  buy.     Economists  have 
called  this  opportunity  cost.     It  is  clear  that  the  price  of  an 
article  must  not  be  placed  above  the  point  at  which  customers 
will  prefer  to  spend  their  money  for  other  goods,  or  there  will 
be  no  sales  of  this  article. 

Increasing  Desire  by  Teaching.-The  work  of  the  retailer 
and  his  salespeople,  and  of  the  advertising  given  to  the  goods 
offered  in  a  store,  must  not  be  overlooked  in  discussing  the 
strength  of  '^consumer  demand,"  particularly  for  goods  that 
are  not  well  known  to  the  customers.  It  is  a  well  established 
principle  of  psychology  that  we  can  desire  only  that  which 
we  know  something  about,  and  the  thing  for  which  desire  is 
the  strongest  is  the  central  thing  in  the  mind.  Strong  human 
wants,  such  as  that  for  food,  when  hunger  presses,  force  them- 
selves into  the  center  of  attention,  while  other  wants  present 


226 


ECONOMICS  OF  RETAILING 


themselves  in  the  orderly  course  of  thought.  A  person  tends 
to  value  a  thing  in  proportion  to  his  knowledge  of  it,  and  of  its 
practical  significance  to  him.  Salesmanship  consists  in  teach- 
ing customers  about  the  goods,  their  qualities,  their  uses, 
and  the  satisfactions  they  provide.  In  this  way  con- 
cepts concerning  the  goods,  are  built  up  in  the  customers' 
minds,  and  wants  for  them  are  developed  and  strengthened. 
Not  only  are  demands  for  new  goods  thus  created,  but  by 
such  processes,  the  customers  are  educated  up  to  a  willing- 
ness to  pay  more  for  a  similar  article  than  they  otherwise 
would.  The  pre-existent  desire  for  the  article  is  made  very 
much  stronger,  not  only  absolutely  but  relatively,  than  the 
desire  for  other  goods.  The  salesman's  knowledge  of  his 
goods,  his  way  of  telling  what  the  customer  wants  to  know, 
his  faith  in  his  goods,  and  his  "nerve"  in  asking  a  price 
go  far  towards  fixing  in  the  mind  of  the  customer  a  desire 
for  the  article  at  the  price  named. 

Competition.— In  addition  to  the  competition  of  desires 
for  various  goods  within  the  individual's  own  mind,  there  is 
the  familiar  competition  of  the  world  of  business,  the  compe- 
tition of  dealers  offering  the  same  or  similar  articles.  In  times 
past  the  most  effective  competition  among  retailers  was  among 
those  whose  stores  were  located  close  to  each  other,  but  dur- 
ing the  last  few  years,  particularly  in  the  smaller  towns  and 
the  country,  the  competition  of  the  big  stores  in  the  large 
cities  and  the  mail-order  houses  has  pushed  closely  up  to 
front  rank.  Aside  from  cut-throat  competition  whose  pur- 
pose it  is  to  kill  off  or  to  drive  trade  rivals  out  of  business 
entirely,  competition  usually  results  in  forcing  prices  down 
close  to  cost  levels  with  possibilities  of  net  profit  for  the 
more  efficient  dealers  only.  Price  levels  will  tend  to  become 
fixed  at  a  place  above  which  no  dealer  can  sell  very  many 
goods  nor  continue  his  sales  for  very  long. 


1 


HOW  RETAIL  PRICES  ARE  FIXED 


'227 


When  customers  are  ignorant  of  what  other  retailers  are 
offering  certain  goods  for,  a  retailer  may  sometimes  keep 
up  his  prices  for  a  time  in  the  face  of  competition.  But 
selling  goods  for  more  than  other  dealers  get  is  likely  to 
provoke  considerable  ill-will  when  discovered,  and  it  is  re- 
markable that  this  feeling  is  likely  to  vary  inversely  as  the 
value  of  the  article.  Nothing  seems  so  irritating  to  the  aver- 
age customer  as  to  find  out  that  he  has  been  charged  fifteen 
cents  for  an  article  that  other  dealers  are  selling  for  ten  cents 
while  an  overcharge  of  $5  on  a  $25  or  $30  coat  or  garment 
may  create  but  little  resentment.  Such  details  need  the  care- 
ful attention  of  the  retailer. 

Destructive   Price-cutting.-Competition   that   drives   the 
price  levels  below  the  costs  of  the  goods  plus  the  costs  of  sell- 
mg  tends  either  to  drive  dealers  out  of  business,  or  to  drive 
them  together  into  combinations  having  for  their  purpose  the 
establishment  of  more  profitable  prices.    The  price-cutter  is  to 
the  regular  retailer  what  the  scab  is  to  the  trade  unionist. 
The  public  has  always  opposed  .such  combinations  and  under- 
standings among  dealers  while  excusing  if  not  favoring  sim- 
ilar combinations  among  laborers.    It  has  always  been  feared 
that  dealers'  combinations,  if  allowed  at  all,  would  lead  speed- 
ily to  monopoly  and  monopoly  prices.    One  of  the  most  prom- 
ising movements,  however,  for  the  elimination  of  cut-throat 
competition,  particularly  the  kind  that  grows  out  of  ignorance 
of  what  it  costs  to  do  business,  is  the  movement  among  busi- 
ness organizations  to  teach  all  dealers  how  to  compute  the 
costs  of  doing  business  in  their  own  stores  and  to  get  them 
to  establish  uniform  accounting  systems,  so  that  results  from 
various  stores  may  be  compared  readily.     Practically  every 
retailers'  association  in  the  country  is  now  working  towards 
this  end. 

It  is  not  thought  that  accurate  knowledge  of  costs  will 


228 


ECONOMICS  OF  RETAILING 


eliminate  competition,  but  with  exact  knowledge,  it  is  be- 
lieved that  most  dealers  will  hesitate  before  beginning  to  cut 
prices  down  below  the  cost  line.  If  they  do  cut  below  they 
will  at  least  do  so  consciously,  and  this  has  not  always  been 
the  case  with  price-cutters  in  the  past. 

Setting  a  "Fair  Price." — Some  associations  have  worked 
out,  and  the  trade  papers  have  published  what  have  been 
considered  fair  prices  for  various  kinds  of  retail  services, 
much  the  same  as  professional  organizations  have  worked  out 
schedules  of  regular  rates  or  charges.  The  National  Associa- 
tion of  Retail  Druggists  has  a  price  schedule,  which  it  sug- 
gests that  its  members  should  use,  showing  what  to  charge 
for  prescriptions.  In  this  schedule  careful  account  is  taken 
of  the  average  amount  of  time  required  to  fill  the  various 
classes  of  prescriptions,  costs  of  materials,  containers,  and  so 
on.  How  generally  this  schedule  has  been  adopted  by  mem- 
ber druggists  is  not  known. 

Habit  and  Price. — The  rule  of  custom  is  strong  in  the 
retail  business.  Customary  prices  are  current  in  many  lines. 
It  is  difficult  to  sell  goods  for  more  than  these  prices,  and  in 
case  of  rising  costs,  the  emergency  is  met  more  frequently  bv 
reducing  quality  than  by  increasing  prices.  On  the  other  hand, 
customers  do  not  expect  to  buy  goods  for  less  than  the  cus- 
tomary prices,  hence  when  costs  of  production  go  down  and 
competition  among  dealers  is  not  particularly  keen,  the  old 
selling  prices  yielding  enlarged  profits  are  often  maintained 
for  a  considerable  length  of  time. 

Every  price  that  is  repeated  tends  to  become  customar}^ 
After  an  article  has  sold  for  a  considerable  length  of  time  at 
the  same  price  both  customers  and  dealers  get  into  the  habit 
of  thinking  of  it  as  fixed.  Such  prices  tend  to  cover  all  the 
costs  of  production  and  distribution  and  a  minimum  of  sat- 


HOW  RETAIL  PRICES  ARE  FIXED 


229 


isfactory  net  profit.  Any  other  set  of  conditions  will  tend 
to  upset  the  equilibrium  the  customary  price  presupposes. 
Goods  that  have  to  be  .sold  at  less  than  costs  of  production 
and  distribution  will  drop  out  of  the  market,  while  goods 
sold  at  large  net  profits  will  attract  competition  that  will  re- 
sult in  a  reduction  of  the  price.  Between  these  two  forces, 
one  tending  to  limit  the  supply  until  prices  go  up  to  a  satis- 
factory point,  and  the  other  tending  to  reduce  net  profits  to  a 
minimum,  the  price  tends  to  become  constant  or  customary. 
Whatever  these  customary  prices  are  they  must  be  observed 
by  the  retailer  in  fixing  prices  on  any  particular  article. 

Ethical  Influences  on  Prices.— In  all  of  the  struggles  of 
business  for  price  and  profits,  cold-blooded  as  they  seem,  and 
generally  are,  there  are  frequent  indications  of  influences  of 
an  ethical  nature  at  work.     What  seems  'Vight"  prevails  at 
times  over  all  other  forces.     Discussions  of  ''fair  prices"  in- 
volve this  higher  element.     The  opposition  even  of  disinter- 
ested persons  to  cut-throat  competition  is  another  example. 
Customers  are  sometimes  willing  to  pay  to  some  dealers  a 
higher  price  than  goods  may  be  obtained  for  elsewhere,  be- 
cause they  feel  that  the  dealers  should  be  supported  in  their 
policies  of  trade,  as  for  example,  in  selling  goods  not  made 
in  sweat  shops,  in  dealing  in  home  produced  goods,  and  so  on. 
The  forces  of  competition  are  at  least  modified  to  a  certain 
extent  through  such  influences  as  these.     The  store  manager 
who  is  known  for  his  fairness  to  his  employees,  for  his  public 
spirit,  and  for  his  charity  is  likely  to  draw  trade  even  if  his 
prices  are  somewhat  higher  than  those  of  other  merchants 
who  have  not  manifested  the  same  likeable  qualities. 

Another  instance  of  the  influence  of  other  than  purely 
selfish  motives  is  found  in  the  customary  practice  among 
many  dealers,  druggists,  for  example,  to  charge  the  poor  less 
than  the  regular  rates  for  prescriptions  and  medicines.     This 


230 


ECONOMICS  OF  RETAILING 


HOW  RETAIL  PRICES  ARE  FIXED 


fit 


cannot  be  explained  by  saying  that  they  are  getting  all  they 
can  out  of  these  poor  people.  The  star  added  to  the  price 
mark — the  sign  that  less  than  schedule  prices  have  been 
charged — found  on  a  large  number  of  the  prescriptions  in 
the  files  of  many  druggists,  indicates  that  the  work  of  the  pro- 
fession of  pharmacy  is  after  all  in  the  interests  of  humanity 
and  that  justice  has  tempered  economics  in  fixing  the  prices 
charged  people  beset  by  pressing  difficulties. 

The  same  spirit  of  fairness  is  aroused  in  another  connec- 
tion and  quite  selfishly  perhaps,  but,  nevertheless,  related  to 
the  phenomena  already  described.  When  a  man  says  to  him- 
self when  marking  the  price  on  an  article,  "I  ought  to  get  so 
much  for  it,"  his  idea  back  of  the  word  "ought"  has  fairness 
in  view,  even  if  it  is  to  himself.  The  idea  is  quite  different 
from  that  which  a  man  has  when  he  says  'I'll  get  all  I  can 
for  it!" 

Again,  when  a  man  is  being  ruined  by  competition,  he 
rarely  speaks  of  economic  laws,  nor  does  he  blame  the  eco- 
nomic system.  He  appeals  for  "fair  play."  He  wants  to  be 
defended  from  "unfair  competition."  To  deal  with  such 
cases  as  his,  society  has  built  up  entire  codes  of  legal  process 
and  precedent  on  "unfair  trade,"  and  to  these  codes  new 
items  are  constantly  being  added.  In  other  words,  the  ethi- 
cal is  encroaching  on  the  blind,  economic,  frequently  un- 
social, forces  through  the  medium  of  courts  and  law. 

Differing  Ideas  of  Value  Influence  Prices. — In  considering 
at  what  price  goods  should  be  marked  in  order  that  they  may 
sell  profitably,  it  has  been  assumed  up  to  this  point  that  the 
demand  of  all  customers  is  the  same,  or  that  there  are  no  indi- 
vidual differences  of  opinion  as  to  desirability  or  value.  This 
might  hold  in  theory,  but  in  practice  nothing  could  be  farther 
from  the  truth.  To  illustrate,  out  of  ten  men,  probably  not 
more  than  five  would  care  for  a  safety  razor  at  any  price. 


231 


Out  of  ten  women,  not  more  than  three  or  four  would  buy 
black  hats  with  pink  trimmings,  under  any  circumstance,  and 
so  on.  Sales  will  be  limited  to  the  number  of  persons  who 
feel  a  desire  for  the  particular  article.  But  not  only  will  sales 
depend  upon  the  number  of  people  who  have  any  desire  for  the 
article,  but  they  will  also  depend  upon  the  price  itself.  At  a 
given  price  there  will  be  a  certain  number  of  purchasers,  at  a 
higher  price  there  will  be  fewer,  and  at  a  lower  price  there  will 
be  more.  Tlius  the  volume  of  sales  possible  at  a  certain  price 
within  a  certain  time  is  an  important  consideration  in  fixing 
a  price  that  will  be  most  profitable. 

Toilet  Soap  an  Example.— Take  for  example  a  toilet  soap 
whose  cost  to  the  dealer,  both  purchase  price  and  selling  ex- 
pense added  together,  amounts  to  8  cents  per  bar.  At  what 
price  should  it  be  sold?  The  answer  will  depend  upon  the 
possibilities  of  making  sales  at  different  prices.  Suppose  that 
the  sales  for  a  week  at  10,  13,  and  15  cents  per  bar  were  esti- 
mated to  amount  to  100,  50,  and  20  bars  respectively.  The 
net  results  of  each  pricing  system  can  be  most  easily  under- 
stood by  a  table : 

Sales  of  Toilet  Soap  in  One  Week  at  Different 

Prices 


Selling  Price 

Total 
Estimated 
Sales 

Amounts 
Received 

10  cents 
15      " 

100  bars 

50    " 
20    " 

$10.00 
6.50 
3.00 

Costs  at 

8c  per 
Bar 

Net 
Profit 

$8.00 

$2.00 

4.00 
1.60 

2.50 
1.40 

It  is  clear  from  the  above  that  sales  made  at  13  cents  per 
bar  will  yield  the  highest  net  return.  This  will,  therefore  be 
selected  as  the  sales  price  for  the  week.  It  should  also  be 
noted  that  sales  at  10  cents  per  bar  are  relatively  more  profit- 
able than  at  15  cents  per  bar  for  the  reason  that  five  times  as 


i 


232 


ECONOMICS  OF  RETAILING 


much  soap  is  sold  at  lo  cents  as  at  15  cents,  and  the  net  profit 
on  the  sales  at  10  cents  amounts  to  more  than  the  net  profit 
on  the  sales  at  15  cents. 

Capital  and  Turnover.— One  of  the  productive  factors  of  a 
retail  store  is  the  capital  invested  in  its  stocks  of  goods. 
When  this  capital  is  borrowed  for  use  in  the  store,  interest 
must  be  paid  for  it,  and  interest  should  be  entered  as  an  ex- 
pense charge  in  any  case  regardless  of  whether  the  manager 
of  the  store  borrows  or  supplies  capital  from  his  own  funds. 
Efficiency  in  its  use  depends  upon  its  activity.  By  activity  is 
meant  the  number  of  times  it  can  be  used  over  and  over  again 
in  the  course  of  a  year.  Each  complete  use  of  the  capital  in- 
vested in  merchandise  is  known  as  a  "turnover."  If  expenses 
and  profits  per  sale  remain  the  same,  the  greater  the  number 
of  turnovers  within  a  year,  the  greater  the  net  profit  result- 
ing.' This  fact  has  long  been  recognized.  There  is  an  old 
business  maxim  that  expresses  the  idea  exactly;  "A  nimble 
sixpence  is  better  than  a  slow  shilling." 

To  illustrate  with  a  very  simple  kind  of  retail  business, 
suppose  that  a  push  cart  vendor  invests  $6  in  fruits  and  veg- 
etables and  sends  out  the  cart  and  its  load  of  merchandise 
with  a  salesman  who  is  employed  at  $2  a  day.  The  cart  load 
brings  $9.  If  it  takes  a  day  to  sell  out,  the  owner  will  have 
to  pay  $2  out  of  the  $9  to  his  employee.  Since  the  vegetables 
cost  $6,  his  net  profit,  excluding  repairs  and  upkeep  on  his 

*  The  annual  turnover  in  a  retail  business  is  usually  con\puted  by  dividing  the 
sales  for  the  year  by  the  inventory.  This  method  is  incorrect.  In  the  first  place, 
the  inventory  is  usually  taken  at  billed  or  cost  prices,  and  is,  therefore,  not  com- 
parable with  the  sales.  In  the  second  place,  the  inventory  when  taken  only  once 
or  twice  a  year,  is  usually  not  taken  at  a  time  that  will  represent  the  fair  average 
value  of  the  stock  carried.  A  January  inventory  represents,  or  should  represent,  the 
lowest  stock  level  of  the  year.  Using  this  method,  gives  a  result  that  is  too  high,*  and 
is,  therefore,  likely  to  delude  the  merchant  into  thinking  that  his  turnover  is  greuter 
than  it  really  is. 

The  correct  way  to  find  the  annual  turnover  is  to  divide  the  sales  for  the  year 
by  the  average  inventory  for  all  twelve  months,  taken  at  selling  values  not  costs; 
or  divide  the  total  amount  of  goods  sold,  expressed  in  the  figure  which  represents 
what  those  goods  cost  by  the  average  inventory  at  cost  prices. 

If  only  one  or  two  inventories  are  taken  during  the  year,  they  should  be  taken 
at  times  that  most  nearly  represent  average  stock  conditions. 


HOW  RETAIL  PRICES  ARE  FIXED 


^ZZ 


push  cart  in  this  illustration,  amounts  to  $1.     But  if  the  load 
can  be  sold  during  the  forenoon,  and  another  like  load  in 
the  afternoon,  the  expenses  for  the  employee  will  be  the  same. 
viz.,  $2,  the  cost  for  merchandise  will  be  twice  $6  or  $12, 
while  the  gross  receipts  come  to  $18.     Tlie  net  profits,  there- 
fore, amount  to  $18  less  ($12  plus  $2),  or  $4  for  the  day. 
That  is  to  say,  one  turnover  per  day  will  yield  the  push  cart 
merchant  $1  profit,  but  two  turnovers  will  yield  him  $4  on 
the  same  investment.     A  third  turnover  during  the  day  would 
increase  his  profits  to  $7,  all  on  the  capital  investment  of  $6. 
In  the  illustration  above,   it  is  assumed  that  selling  ex- 
penses remained  the  same,  that  is,  $2  per  day,  regardless  of 
the  amount  of  sales.     If  the  absolute  expenses  of  running 
a  store  remained  the  same,  while  its  sales  increased,  the  prin- 
ciple of  increase  in  profits  in  proportion  to  turnover  would 
be  the  same  as  for  the  push-cart  vendor.     This  is  rarely  the 
case,  however.     Some  expenses  in  conducting  a  retail  store 
tend  to  parallel  increases  in  sales,  particularly  the   item  of 
salaries  or  wages  for  salespeople,   deliveries,   rent  and  some 
others.    The  average  store  conditions  can  be  illustrated  better 
by  assuming  in  our  push-cart  example  that  the  salesman  em- 
ployed receives  a  commission  rather  than  a  salary.     Suppose 
that  he  receives  $2  for  every  load  of  merchandise  he  sells. 
Assuming  all  other  conditions  in  the  illustration  to  be  the 
same,  if  but  one  turnover  were  made  per  day,  the  owner  of  the 
push-cart  would  reap  a  net  profit  of  $1.     But  if  two  turnovers 
were  made,  he  would  make  $2,  and  if  three    were  made  he 
would  make  $3.    Thus,  when  expenses  remain  constantly  pro- 
portionate to  sales,  the  net  profits  for  any  period  of  time  will 
equal  the  net  profits  on  one  turnover  multiplied  by  the  num- 
ber of  turnovers  in  that  time. 

Relation  of  Expense  to  Increased  Sales.— Up  to  a  certain 
point  a  store  starting  in  business  can  generally  increase  its 


234 


ECONOMICS  OF  RETAILING 


sales  without  increasing  its  expenses  proportionately.  Beyond 
this  point  its  expenses  parallel  increases  in  sales  until  a  still 
higher  point  is  reached  when  additions  to  sales  cost  relatively 
more  and  more.  Expressed  in  terms  of  economics,  the  first 
is  a  stage  of  increasing  returns  in  proportion  to  outlay,  the 
second  is  a  stage  of  constant  returns,  and  the  third  is  a  stage 
of  diminishing  returns.  In  the  first,  the  percentage  of  expense 
to  sales  decreases;  in  the  second,  it  remains  constant;  and  in 
the  third,  it  begins  to  climb.  The  rise  in  expense  in  the  third 
stage  may  proceed  to  the  point  where  it  will  not  pay  to  in- 
crease the  sales  at  all,  for  the  reason  that  the  costs  incurred  in 
getting  the  additional  business  are  equal  to,  or  greater  than,  the 
gross  profits  derived  therefrom.  For  the  purpose  of  this 
chapter,  it  may  be  assumed  that  most  retail  concerns  are  in 
the  second  stage,  the  stage  in  which  selling  expense  simply 
parallels  business.  Whatever  profit,  therefore,  is  gained  on 
one  turnover  of  the  capital  of  such  stores,  is  multiplied  by 
the  rate  of  turnover. 

Rapid  Turnover  Raises  Net  Profit. — It  is  obvious  that  the 
retailer  will  seek  to  increase  the  number  of  turnovers  in  order 
to  get  the  higher  net  profit.  It  may  even  be  profitable  to 
reduce  the  selling  price  somewhat  to  increase  the  turnover. 
This  amounts  in  substance  to  dividing  the  net  profits  due  to 
the  greater  turnover  with  the  customers.  To  illustrate  we 
may  consider  the  push-cart  vendor  again.  It  was  assumed 
that  on  a  commission  basis  each  turnover  would  net  a  dollar 
profit,  and  that  $3  of  net  profit  could  be  made  in  a  day  if 
three  turnovers  could  be  secured.  Suppose,  however,  that  the 
best  that  could  be  done  was  one  turnover  per  day  when  selling 
at  regular  prices,  but  that  by  reducing  the  prices  so  as  to  sell 
the  entire  load  for  $8.50  instead  of  $9,  three  turnovers  could 
be  made.     Then  what  would  the  results  be? 

Each  turnover  would  in  this  case  net  the  owner  a  profit 


HOW  RETAIL  PRICES  ARE  FIXED  235 

of  50  cents  or  a  total  of  $1.50  on  the  three,  while  one  turn- 
over at  full  prices  would  yield  a  net  profit  of  only  $1.  It 
would,  therefore,  be  more  profitable  by  50  cents  to  sell  at 
the  lower  prices  and  turn  the  goods  oftener. 

This  brings  us  to  a  consideration  of  the  possibilities  of 
turnovers  in  the  various  lines  of  merchandise.  Upon  this 
point  there  have  been  collected  a  number  of  interesting  figures. 

Annual  Turnovers  in  Retail  Stores^ 

Number  of 
Kind  of  Stores                                            Turnovers 
Grocery    jq 

Department    7 

Variety  goods   6 

Drug     4.5 

Dry-goods    a 

Hardware    ^  c 

Furniture    -J 

Shoes    21 

Clothing    2 

Jewelry    .........['.'.'.'.'.'.  1.5 

Annual  Turnovers  of  Departments  in  Department 
Stores  and  Country  General  Stores^ 

Departments  City   Stores   Country   Stores 

Books     4  jr 

Candy     15  g 

Clocks    2.5  I 

Embroideries    3.5  ^ 

Furs    r  - 

Infants'  clothing   c  - 

Laces    4  2 

^r^\ 3.5        2 

Men  s  hats    7  ^ 

Pianos    g  . 

Ribbons    5  2 

Stationery    c  2 

Umbrellas  and  canes       n  ^ 

Trunks    c  jr 

Veilings    5.5  2 

Wash  goods  and  flannels c  ^2 

^  Compiled  by  Wheeler  Sammons  of  System. 
•'  Jd. 


I*i 


236  ECONOMICS  OF  RETAILING 

Annual  Turnovers  in  Various  Lines  in  Dry- 
Goods  AND  Department  Stores^ 

^^^^                                                        Aver.  An.  Turnovers 
Candy    

Skirts   and   petticoats    Z  oi 

Millinery .■...■;.•.:::::::::  Ul 

Coats,    suits,    and    dresses    re 

Stoves,  refrigerators,   and  cookers  ...*.*.* .'  .* .' .' .' ..."       c'ac 

Shirtwaists    ^  j^ 

Patterns     '  \[\\]][[[ 5  q  r 

Furs    *>'  J 

Children's   v^ear 4  4! 

Corsets    ^'^^ 

Toys  and  books 4  42 

Umbrellas    */. . . ...............  4  ^8 

Sewing  machines 4  ^7 

Neckwear  and  handkerchiefs   .'.'...'.*.* 4  26 

Wash  goods 417 

Hosiery    J^'A. 

White  'goods    '.  .*.'.'.*.*.'.'.*.'.' ...'. '. ....'.'.'.'.'.'.'.."       ^76 

Notions    * "^  Q 

Linings    .....*.'.!.'  [.....'.'.'..'. ^77 

Furniture    'i^A 

Jewelry,   toilet  goods,  bags,   belts"***.'.'.*.'.'.'.'.'.'*****       X'A 

Linens   z^V^ 

Trunks  and  bags    ,  ,r, 

Hair   goods    *''.'.'.*.*.*.*.'.*.*.'.*.'.*.*.*.*.*  ^22 

Muslin   underwear    ^"20 

Table  linen  and  towels  *  -3  nn 

Ribbons    '.*.'.'.'.*.*.*.*.'.'.'.*.*.  3.01 

Gloves  and  veilings   2  q6 

fl^^'  ••••• ...:.■.:'.■.::::::::  2:9, 

Uress   goods    20 

Knit   underwear    2.80 

Wall  paper  and  decorations   2.88 

Men's  furnishings   27^ 

Boys'  clothing   .*.....*.*!.*!.'  2.56 

Men's   clothing    2.K2 

i-<aces ...    .....  2  Co 

Infants'   wear    2!4i 

Art  goods  and  needlework   2.34 

Embroideries  and  trimmings   2.26 

Rugs,  carpets,  and  linoleums 2.18 

Shoes  and  rubbers   2.18 

China,  glass,   and   house   furnishings    2.03 

*  The  National  Dry  Goods  Association. 


HOW  RETAIL  PRICES  ARE  FIXED 


237 


The  Harvard  retail  shoe  store  investigation  gives  the 
range  of  turnover  from  i  up  to  3.6,  with  1.8  as  the  point  at 
which  a  large  number  of  stores  center,  and  offers  2.5  as  a 
reaHzable  standard  for  shoe  store  turnovers.^ 

Departmentalized  Accounts.— It   is  clear  that  in  this  mat- 
ter analysis  can  be  carried  much  farther  than  indicated  by  the 
preceding  tables.    It  may  be  safely  assumed  that  each  kind  of 
article  carried  in  stock  has  its  rate  of  turnover,  and  also  its 
specific  selling  cost.     It  is  not  likely  that  retail  cost  account- 
ing can  ever  be  carried  to  the  point  where  these  fine  subdivi- 
sions can  be  made  except  for  such  stores  as  carry  only  a  very 
few  kinds  of  goods.     The  best  that  can  be  done,  as  it  now  ap- 
pears, is  to  ''departmentalize"  the  accounts  to  correspond  with 
the  general  departments  or  main  lines  found  in  a  store  and 
then  make  estimates  within  those  departments  as  to  the  rel- 
ative burdens  of  expense  each  article  should  stand,  and  as  to 
the  rate  of  its  turnover.     This  involves  many  questions,  such 
as  a  comparison  of  the  relative  costs  of  selling  package  as  com- 
pared with  bulk  goods,  staples  compared  with  novelties,  high- 
priced  with  low-priced  goods,  and  so  on. 

If  carried  out  in  a  practical  way  this  analysis  would  show 
that  the  cost  of  doing  business  for  any  retail  store  constitutes 
but  an  average  of  the  costs  of  doing  business  in  each  and  all 
of  the  separate  kinds  of  goods  handled.  For  example,  if  a 
grocery  store  whose  costs  of  doing  business  amount  to  16  per 
cent  of  sales  could  be  analyzed  minutely,  it  would  be  found, 
probably,  that  a  large  number  of  the  goods  in  that  store  were 
being  sold  at  actual  costs  of  more  than  16  per  cent,  some 
possibly  as  high  as  25  per  cent  and  even  30  per  cent;  while 
other  goods  would  run  considerably  less  than  16  per  cent.  It 
could  be  safely  assumed  that  such  goods  as  spices,  teas,  fancv 

1913!  ?age*i4.°^  *^^  ^"'''^"  ''^  Business   Research.   Harvard  University,   No.    i,   May, 


23S 


ECONOMICS  OF  RETAILING 


canned  fruits,  very  perishable  goods,  and  other  goods  sold  in 
small  quantities  and  requiring  considerable  time  to  demon- 
strate and  handle,  cost  the  grocer  more  than  i6  per  cent; 
while  the  selling  cost  of  such  goods  as  sugar,  flour,  lard,  kero- 
sene, staple  vegetables,  and  so  on,  is  less  than  i6  per  cent  of 
the  sales  price. 

Relation  of  Cost  Accounts  to  Prices.— A  number  of  re- 
tailers and  others  who  have  been  studying  the  application  of 
cost  accounts  to  the  pricing  of  goods,  hold  that  the  general 
percentage  of  expense  of  selling  should  be  added  uniformly 
to  all  goods  purchased,  and  that  a  uniform  net  profit  should 
be  added  to  this  amount.      The  sum  of  these  three  items,  the 
cost  price  of  the  goods,  the  costs  of  selling,  and  the  net  profit, 
should  be  the  price  at  which  the  goods  should  be  sold.     That 
this  method  would  not  result  in  prices  representative  of  mar- 
ket values  we  have  already  seen,  but  it  may  be  pointed  out 
here  that  if  this  method  were  followed,  some  goods  would 
have  to  bear  a  much  heavier  expense  burden  than  they  really 
incur,  while  other  goods  would  be  sold  for  less  than  the  origi- 
nal costs,  plus  the  costs  of  handling. 

In  reply  to  this  criticism,  those  who   favor  this  method 
argue  that  this  makes  no  practical  difference  since  the  total 
expenses  and  total  sales  will  probably  be  the  same  as  before. 
But  this  answer  is  subject  to  question,  and,  besides,  the  re- 
tailer who  attempts  this  plan  is  likely  to  find  himself  in  trouble 
with  his  competitors.     Some  who  may  be  carrying  only  such 
goods  as  may  be  handled  and  sold  at  low  expense,  will  thus 
be  able  to  underbid  him  for  trade  and  force  him  to  drop  his 
prices  on  such  goods  or  lose  the  opportunity  of  effecting  their 
sale.     In  case  he  refuses  to  reduce  his  prices,  it  may  be  as- 
sumed that  people  will  go  elsewhere  for  those  goods  on  which 
his  prices  are  high  in  comparison  with  the  prices  offered  by 
other  merchants,  while  they  will  come  to  him  for  goods  which 


HOW  RETAIL  PRICES  ARE  FIXED 


239 


he  sells  at  lower  prices  than  others,  though  they  are  burdened 
with  a  high  cost  of  handling  and  selling.  But  if  he  does  not 
raise  his  price  on  these,  he  will  begin  to  lose  money,  for  the 
sales  that  he  planned  on  in  the  lower  expense  burdened  goods 
can  no  longer  be  made.  Thus  his  deficits  in  the  higher  bur- 
dened goods  will  not  be  covered. 

The  only  logical  way  would  seem  to  be  for  each  article 
in  the  store  to  carry  its  own  burden  as  fully  as  possible. 
Where  the  selling  expense  is  high,  the  price  should  be  made 
correspondingly  high,  and  where  the  selling  expense  is  low, 
the  price  should  be  relatively  moderate.  Long  profits  should 
be  made  on  the  slow  sellers  and  short  profits  on  the  quick 
sellers.  Competition  will  tend  to  drive  prices  in  these  direc- 
tions. 

How  is  the  Selling  Price  Set?— It  will  now  be  of  interest 
to  see  what  practice  retailers  follow  in  marking  the  selling 
prices  of  their  goods.  It  will  be  recalled  that  the  costs  of  the 
goods,  plus  the  costs  of  selling,  set  the  lower  limits  at  which 
goods  may  be  sold,  while  the  relative  desirability  of  the  article 
to  the  consumer  sets  the  upper  limit.  Between  these  two  limits 
there  operate  such  forces  as  competition,  custom,  personal 
salesmanship,  and  desire  for  fair  play  or  the  square  deal. 
With  these  forces  to  reckon  with,  how  is  the  price  to  be  set? 

One  of  the  customary  methods  is  to  study  competitors' 
prices  and  then  fix  prices  at  the  same  points.  This  is  a  dan- 
gerous policy  unless  the  retailer  knows  what  his  own  costs 
are  and  that  his  prices  adequately  cover  them.  If  compet- 
itors' prices  are  too  low  on  some  goods,  the  only  way  out  of 
the  difficulty  for  the  retailer  is  to  avoid  such  goods  as  much 
as  possible,  deal  in  other  lines  in  which  prices  are  not  so  low, 
secure  exclusive  agencies,  and  specialize  on  certain  profitable 
hues. 

When  competitors'  prices  are  not  known,  the  method  of 


240 


ECONOMICS  OF  RETAILING 


determining  prices  most  commonly  used  is  to  compare  the 
goods  to  be  priced  in  every  way  with  other  goods  of  the  same 
class  that  have  already  been  successfully  sold,  and  to  mark 
the  new  goods  higher,  lower,  or  the  same,  as  they  seem  to  be 
more,  or  less,  or  equally  desirable. 

Salespeople  Assist  in  Price-Fixing. — In  this  connection  it 
is  worth  noticing  that  some  of  the  most  successful  retailers 
constantly  call  on  their  salespeople  for  assistance  in  this  mat- 
ter. The  salesman  is  asked  what  he  thinks  he  can  sell  a  given 
article  for.  The  salesman  realizes  that  he  succeeds  w^ith  his 
firm  only  in  proportion  as  he  makes  a  profit  for  it.  In  the  light 
of  his  experience  with  past  goods  he  will  name  as  high  a  price 
as  he  thinks  he  can  get.  But  if  he  is  wise,  he  will  not  make  it 
too  high  for  he  may  be  called  to  account  later  on  for  his  in- 
ability to  sell  it  at  the  price  named.  This  method,  therefore, 
not  only  gets  a  price  set  upon  the  goods  at  w^hich  they  are 
likely  to  be  sold,  but  also  enlists  the  full  co-operation  of  the 
salesman  in  making  the  goods  move  at  the  price  named. 

A  combination  of  these  methods — a  comparison  with 
competitor's  prices,  comparison  with  prices  of  other  goods 
successfully  sold,  using  the  judgment  of  the  salespeople,  in 
the  meantime  checking  back  to  the  costs  of  the  goods  and 
of  selling — is  the  plan  followed  by  a  large  number  of  suc- 
cessful stores.  Following  any  one  plan  is  likely  to  lead  into 
difficulties.  Only  by  considering  all  of  the  factors  affecting 
cost  on  the  one  hand  and  demand  on  the  other,  can  the  price 
be  set  which  will  bring  the  best  returns  to  the  store. 

Goods  of  Variable  Value. — A  large  number  of  goods  are 
exceedingly  variable  in  value,  particularly  those  affected  by 
changes  in  fashion.  A  recent  article  in  a  trade  paper  asserted 
that  25  to  30  per  cent  of  the  goods  handled  in  department 
stores  are  subject  to  mark-downs.     In  other  w^ords,  in  such 


HOW  RETAIL  PRICES  ARE  FIXED 


241 


goods,  even  when  of  the  same  quality,  there  is  no  certainty 
that  all  purchased  at  one  time  can  be  sold  at  the  price  named 
at  first.  As  soon  as  a  stock  of  such  goods  begins  to  move 
slowly  at  the  price  first  set,  it  is  customary  to  ''mark  them 
down."  Reduction  sales  are  held,  and  the  goods  cleared  out 
in  this  way. 

To  illustrate,  suppose  a  concern  purchases  a  lot  of  fancy 
silks  at  a  uniform  price  of  $1.35  per  yard.  In  the  lot  there 
may  be  a  great  variety  of  patterns,  colors,  and  shades.  Recog- 
nizing the  fact  that  demand  for  such  goods  as  dress  silks, 
varies  exceedingly  with  individual  purchasers,  and  that  the  de- 
mand created  by  fashion  is  at  its  best  very  fickle,  the  concern 
sets  out  to  make  the  best  of  it.  Instead  of  setting  a  uniform 
price  on  the  silks  at  which  they  hope  to  sell  out  the  entire  lot, 
they  may  fix,  at  first,  a  price  as  high  as  $3,  or  more.  The 
fact  that  a  "fresh  shipment  of  beautiful  dress  .silks  in  the  very 
latest  patterns  has  just  arrived"  will  be  announced,  and  some 
shoppers  are  likely  to  be  interested.  As  a  result  some  sales 
will  be  made. 

These  first  customers  will  naturally  pick  out  what  to 
them  seem  the  most  desirable  patterns  and  colors.  Then  in 
order  to  move  another  portion  of  the  stock  a  "cut"  in  price  is 
resorted  to.  "Silks  formerly  offered  at  $3  are  now  being  sold 
at  $2.19."  This  brings  a  great  many  more  shoppers,  and  at 
this  point  a  large  part  of  the  goods  are  probably  sold.  But 
there  may  still  remain  a  collection  of  odds  and  ends  of  the 
patterns  that  did  not  seem  very  desirable  to  the  two  classes  of 
shoppers  that  have  already  examined  them.  These  are  "re- 
duced" again,  perhaps  sent  to  the  bargain  basement  or  subway 
store,  to  be  sold  at  $1.69.  Here  the  last  of  the  lot  is  dis- 
posed of.  This  policy  seems  to  succeed  better  than  to  offer  the 
entire  lot  at  say  $2.25,  and  hold  to  that  price  until  all  are  .sold. 
At  the  latter  price  it  is  not  likely  that  all  could  be  sold  and 
the  net  result  would  be  considerably  less  profitable  to  the  con- 


242 


ECONOMICS  OF  RETAILING 


cern  than  when  sold  in  the  way  indicated.  This  method  of 
marking  up  goods  and  making  reductions  as  necessary  seems 
to  be  the  most  effective  way  to  sell  some  goods,  especially 
those  that  are  subject  to  changes  in  style.  Besides  bringing 
handsome  profits  to  the  concern  directly,  the  spectacular  cuts 
in  prices,  incident  to  the  system  described,  furnish  excitement 
for  the  readers  of  the  store's  advertising,  and  help  to  draw 
crowds  who  are  likely  to  buy  other  goods  as  well  as  those 
advertised. 

The  One-Price  Policy. — There  are  certain  well-defined 
policies  with  reference  to  retail  store  prices  that  need  to  be 
mentioned.  The  first  of  these  is  the  one-price  policy.  Stores 
following  this  policy  mark  their  goods  in  plain  figures  and, 
at  any  given  time,  sell  to  any  or  all  buyers  at  the  same  price. 
That  some  buyers  might  be  willing  to  pay  more  if  they  had 
to,  makes  no  difference.  If  the  price  is  too  high  for  others 
no  reduction  is  made.  All  are  treated  alike.  The  one-price 
policy  is  comparatively  modern.  It  first  came  into  use  in  this 
country  in  the  big  dry-goods  and  department  stores.  The  or- 
ganization of  such  stores  as  they  grew  became  so  complicated 
that  any  other  policy  was  hard  to  carry  out.  The  old  dicker 
and  bargain  policy  still  found  in  many  one-line  stores  of  the 
old-fashioned  type  required  salespeople  with  considerable  skill 
in  handling  customers.  The  one-price  policy  made  it  possible 
to  employ  people  who  had  had  no  training  in  business  nor  in 
any  phase  of  buying  and  selling.  To  be  successful  the  one- 
price  policy  demanded  that  the  price  be  fixed  at  the  point  at 
which  the  goods  would  move,  and  after  a  trial,  if  it  was  found 
that  customers  did  not  buy,  the  prices  could  be  revised  and  re- 
duced. If  the  prices  were  made  too  low,  that  fact  could  also 
be  noted  and  changes  made  accordingly.  Thus  the  bargaining 
process  was  removed  from  individuals  and  made  a  matter  of 
reaching  groups. 


HOW  RETAIL  PRICES  ARE  FIXED 


243 


Success  of  One-Price  Policy.— The  one-price  policy  has 
been  found  very  successful  in  this  country  and  very  much  in 
accord  with  the  common  sentiment  of  the  American  people — 
equality  of  opportunity  (even  in  buying  goods)  to  all.  It  has 
resulted  in  great  economies  in  time  for  both  buyer  and  seller. 
The  weak  and  the  ignorant  have  been  placed  on  a  level  in 
purchasing  ability  with  the  best.  Salesmanship  under  the 
one-price  policy  has  been  raised  from  the  level  of  talking 
about  the  price,  to  dernonstrating  what  is  being  offered. 

The  old  plan  of  marking  goods  with  secret  or  code  price 
marks  and  then  selling  them  to  customers  for  as  much  above 
this  price  as  possible  has  not  entirely  passed  away.     There 
are  still  houses  whose  salesmen  "size  up  a  customer"  when 
it  comes  to  stating  the  price,  and  then  ask  as  much  above 
the  minimum  set  by  the  concern  as  they  think  the  customer 
is  likely  to  pay.     In  the  old  days  the  customer  usually  par- 
ried and  made  an  offer  of  considerably  less.     Then  the  hig- 
gling began,  the  salesman  bragging  about  his  goods  and  the 
customer  pointing  out  their  defects,  until  finally  some  com- 
promise was  reached,  often  halfway  between  the  price  first 
asked  and  that  offered.     In  many  instances  the  salesman  re- 
ceived a  commission  on  all  sales  in  which  he  succeeded  in 
getting  more  than  the  minimum  decided  upon  by  the  concern, 
some  firms   splitting  such  profits  evenly  with  the  salesmen. 
Except  in  the  largest  cities  where,  in  addition  to  the  modern 
department  store  with  its  one  price  to  all,  are  found  the  lowest 
grade  of  shops  with  different  prices  to  different  people,  these 
practices  no  longer  prevail. 

The  Variable-Price  System.— The  system  of  variable 
prices  has  little  to  commend  it  except  its  age.  In  principle  it 
accords  perfectly  with  the  old  theory  of  freedom  of  the  mar- 
ket and  free  competition.  Under  this  principle  the  "fittest" 
bargainer  "survived."     In  times  past  when  man's  wants  and 


4 


244 


ECONOMICS  OF  RETAILING 


HOW  RETAIL  PRICES  ARE  FIXED 


245 


varieties  of  goods  were  not  so  numerous  as  they  are  now  and 
when  there  was  not  the  pressure  for  time  that  characterizes 
modern  Hfe,  there  may  have  been  more  reason  for  such  a 
pohcy  than  at  present.  Since  there  were  fewer  goods  to  buy, 
and  fewer  varieties  of  those  goods,  it  must  have  been  easier 
to  exercise  wisdom  in  their  selection  and  purchase,  and  to 
know  their  quaHties  and  values.  Customers  could  then  afford 
to  waste  hours  in  jangling  and  bargaining  in  the  shops  over 
half  shillings,  whereas  now,  so  far  as  possible,  every  develop- 
ment is  towards  setting  man's  time  free  from  the  economic 
struggle  of  life.  Hours  of  labor  are  cut  down,  children  are 
forbidden  to  labor  before  reaching  certain  ages,  and  pensions 
are  given  to  the  aged  so  that  they  may  retire  from  labor. 
In  accord  with  this  same  tendency,  the  people  of  the  present 
are  seeking  to  standardize  and  to  make  automatic  as  much 
of  the  economic  life  as  possible,  in  order  to  save  time  for 
other  things.  The  one-price  policy  in  retail  stores  seems  to 
be  in  line  with  these  tendencies. 

Finally,  there  are  indications  that  in  the  near  future  the 
public  will  be  more  generally  informed  concerning  the  costs 
of  distribution  and  consequently  concerning  retailing.  Much 
of  the  dissatisfaction  and  criticism  of  our  distributive  system 
has  grown  up  because  the  public  has  not  fully  understood 
what  work  has  been  performed  for  them  by  distributors  and 
what  the  legitimate  costs  for  such  services  really  are.  Not 
knowing  the  facts,  such  information  as  the  people  have  gained 
concerning  the  margins  of  gross  profit  that  retailers  get  has 
made  it  easy  to  conclude  that  middlemen  are  robbers.  A 
clearer  knowledge  of  the  necessary  costs  of  any  form  of  dis- 
tribution must  certainly  serve  to  clear  up  any  misconceptions 
or  misunderstandings. 

Publicity  of  Retailers'  Costs. — It  has  already  been  sug- 
gested, and  it  may  not  be  long  before  the  more  progressive 


retailers  will  decide  to  reveal  their  business  costs  to  their  cus- 
tomers and  urge  them  to  come  for  goods  on  the  ground  that 
their  costs  of  doing  business  are  less  than  their  competitors. 
In  these  days  when  we  worship  the  ideal  of  efficiency,  such 
an  argument  as  that,  truthfully  stated,  should  prove  a  great 
trade  attractor.  Sooner  or  later  the  growing  unrest  of  the 
public  concerning  the  rising  costs  of  living  will  be  focussed 
on  the  costs  of  distribution.  Public  investigations  will  be 
made  and  legislation  proposed.  Much  of  any  ill-will  that 
might  be  present  in  that  scrutiny,  when  it  comes,  can  be 
averted  by  retailers  if  they  will  but  take  the  public  into  their 
confidence.  Price  is  the  tender  spot  in  nearly  all  economic 
discussions  where  public  interest  is  concerned.  It  is  highly 
essential  that  all  retailers,  who  are  doing  a  legitimate  business 
upon  a  reasonable  profit  basis,  co-operate  in  letting  the  public 
know  what  are  their  price-making  processes  and  problems. 


CHAPTER  XV 


THE  DEPARTMENT  STORE 


What  a  Department  Store  Is. — The  department  store  is  a 
retailing  institution  that  deals  in  several  lines  of  goods,  each 
line  separated  or  ^'departmentalized"  from  the  rest,  both  m  lo- 
cation within  the  building  and  in  the  concern's  accounting 
and  management  systems.  Each  department  is  considered 
practically  a  store  in  itself,  and  in  large  stores  each  has  its 
separate  organization  of  buyer,  or  department  manager,  and 
salespeople,  much  the  same  as  any  independent  store. 

The  term  ''department  .store"  has  not  been  received  with 
much  favor  by  the  managers  of  some  of  the  largest  and  most 
representative  institutions  of  this  kind.  "United  stores," 
"consolidated  stores,"  and  other  names  have  been  suggested 
as  more  appropriate.  The  reason  for  this  disfavor  is  probably 
that  the  title  "department  store"  has  been  claimed  by  many 
concerns  doing  business  on  planes  that  have  tended  to  draw 
disrepute  to  the  whole  class.  However,  this  term  has  come 
into  general  use  by  the  public,  and  it  is  probable  that  the  name 
will  stick. 

Origin  of  the  Department  Store. — Although  department 
stores  have  existed  in  this  country  less  than  half  a  century, 
their  origin  is  hard  to  trace.  The  general  merchandise  store 
once  so  common,  and  still  found  in  large  numbers  of  country 
towns,  handling  all  classes  of  goods,  but  not  in  departments, 
is  considered  by  some  as  the  prototype  of  the  modern  depart- 
ment store.  There  is  certainly  a  similarity  in  the.  functions 
performed  by  the  two  institutions,  but  their  respective  organ- 

246 


THE  DEPARTMENT  STORE 


247 


izations  are  entirely  different,  and  but  few  of  the  present  de- 
partment stores  were  the  direct  outgrowth  of  general  mer- 
chandise stores.  The  general  merchandise  store  has  usually 
given  way  to  specialty  or  one-line  stores,  and  the  department 
store  has  appeared  only  after  the  merchandising  of  the  com- 
munity has  become  well  established  and  advanced.  A  large 
number  of  department  stores  trace  their  beginnings  to  dry- 
goods  stores.  Factory  production  of  women's  goods,  and  of 
goods  formerly  made  in  the  homes,  such  as  women's  and 
children's  ready-to-wear,  underwear,  hosiery,  millinery,  laces, 
embroideries,  and  household  goods  of  all  kinds  has  resulted 
in  a  demand  for  special  outlets  to  women  customers.  Since 
the  dry-goods  stores  were  first  in  the  field  as  suppliers  of 
women's  needs  these  new  lines  of  goods  have  naturally  found 
a  place  in  dry-goods  stores  expanded  into  department  stores. 
The  competition  among  dry-goods  merchants,  and  the  nar- 
rowing margins  in  the  older  lines  of  goods,  such  as  the  tex- 
tile staples,  have  helped  to  make  the  merchants  more  ready  to 
take  on  the  new  lines  and  to  expand  their  stores  by  adding 
new  departments  than  they  would  otherwise  have  been.  Thus, 
by  gradual  expansion,  the  dry-goods  store  grew  into  a  de- 
partment store. 

Department  Store  Formed  by  Consolidation. — It  seems 
that,  in  some  cases,  the  department  store  had  its  origin  in  a 
consolidation  of  several  stores  conducted  by  as  many  indi- 
viduals under  one  roof.,  It  has  been  customary  in  many  in- 
stances for  the  owner  of  a  building,  or  the  lessee  of  the  por- 
tion suited  for  store  purposes,  to  sublease  a  part  of  the  floor 
space  to  one  person,  and  other  parts  to  others  with  the  un- 
derstanding that  each  should  conduct  a  retail  business  thereon 
in  a  specified  line  of  goods  not  competing  with  other  lines  of 
goods  offered  in  other  departments.  There  are  in  existence 
today  many  such  combined  stores.     With  the  passage  of  time 


*^ 


248 


ECONOMICS  OF  RETAILING 


THE  DEPARTMENT  STORE 


the  ownership  of  these  several  departments  passed  to  one  in- 
dividual, who  thereby  became  a  department  store  owner. 

Period  of  Rapid  Development. — Whatever  were  the  be- 
ginnings of  department  stores,  the  fact  remains  that  the  period 
following  the  panic  of  1873-4  in  this  country  saw  a  rapid  de- 
velopment of  this  class  of  retailing  establishment.  The  Jor- 
dan Marsh  Company's  store  in  Boston  is  credited  by  some 
with  being  the  first.  This  store,  it  is  understood,  borrowed 
the  idea  from  the  Bon  Marche,  a  large  retail  store  in  Paris, 
and  the  first  department  store  of  which  anything  is  known 
anywhere.  Shortly  after  the  Jordan  Marsh  store  had  been 
departmentalized,  other  department  stores  were  established  in 
Chicago,  Philadelphia,  and  New  York. 

Following  the  close  of  the  Civil  War,  prices  of  all  com- 
modities handled  in  retail  stores  began  to  fall,  competition 
stiffened,  new  methods  of  merchandising  began  to  be  tried 
out.  To  use  a  stock  exchange  term,  the  ''bears"  ruled  the 
retail  markets.  Many  of  the  older  storekeepers  did  not  know 
how  to  adapt  their  business  so  as  to  buy  and  sell  under  such 
conditions.  Out  of  these  circumstances  grew  the  tendency 
among  some  retailers  to  buy  for  cash  in  the  wholesale  markets 
and  direct  from  the  producers,  to  seek  out  bargains,  and  to 
sell  quickly  by  offering  the  merchandise  at  prices  lower  than 
usual.  Profits  were  made  smaller  per  sale,  but  stocks  were 
turned  oftener.  Advertising  was  applied  to  help  sell  the  goods. 
Special  sales  began  to  be  introduced ;  while,  on  the  other  hand, 
the  demand  of  the  public  for  goods  increased  both  in  variety 
and  amount.  Under  these  conditions  there  appeared  contem- 
poraneously the  department  store,  the  mail-order  house,  and 
the  chain  store. 

Number  of  Department  Stores  Today. — According  to  the 
United  States  Census  of  19 10,  there  were  8,970  department 


249 


store  merchants  and  88,059  general  store  dealers  in  this  coun- 
try. Dun  lists  nearly  1,800  department  stores.  There  are 
about  a  hundred  department  stores  that  are  rated  at  a  million 
dollars  or  more.  Probably  nearly  half  of  entire  retail  sales 
of  dry-goods  and  women's  ready-to-wear  are  made  through 
department  stores.  The  volume  of  business  done  by  these 
stores  in  the  hundred  leading  cities  of  this  country  exceeds  a 
billion  dollars. 

Naturally  the  department  store  business  is  largely  con- 
centrated in  the  larger  cities.  Greater  New  York  has  nearly 
a  hundred  establishments  of  this  character  doing  a  business 
aggregating  more  than  $300,000,000  per  year.  In  New  York 
the  sales  of  some  of  the  largest  stores  are  in  excess  of  $20,- 
000,000  per  year.  One  store  in  Philadelphia  probably  sell's 
$30,000,000  per  year.  It  is  commonly  .stated  that  the  largest 
store  in  Chicago  has  sales  amounting  to  $35,000,000.  The 
largest  in  Boston  sells  $20,000,000,  and  the  largest  in  St. 
Louis  nearly  $10,000,000  worth  of  merchandise  annually. 

The  Department  Store  Abroad.— The  modern  develop- 
ment of  the  department  store  is  not  exclusively  American. 
In  Paris  there  are  at  least  nine  or  ten  large  stores  of  this 
type.  Besides  the  Bon  Marche  already  mentioned  as  the  pio- 
neer, there  are  the  Louvre,  Galleries  Lafayette,  Printemps, 
Trois  Quartiers,  Maison  de  Blanc,  Cour  Batave.  Samaritaine,' 
and  Dufayel's.  In  London,  Harrod's,  Whiteley's,  and  Sel- 
fridge's  stores  are  well  known.  H.  G.  Selfridge,  however,  is 
an  American,  a  former  resident  of  Chicago,  and  at  one  time 
a  partner  of  Marshall  Field.  The  private  department  stores 
do  not  succeed  as  well  in  England  as  on  the  Continent,  for  in 
England  their  functions  are  at  least  partly  performed  by  the 
big  co-operative  societies'  stores,  of  which  there  are  branches 
in  nearly  all  parts  of  Great  Britain.  In  Germany  this  system 
of  merchandising  is  well  developed  and  the  number  of  estab- 


f 


250 


ECONOMICS  OF  RETAILING 


lishments  great.  One  of  the  stores  In  Berlin,  Wertheim's,  is 
said  to  occupy  the  most  remarkable  merchandising  building 
in  the  world.  Department  stores  are  also  to  be  found  in 
China,  Japan,  Argentina,  Australia,  and  Canada. 

The  department  store  has  come  into  existence  in  response 
to  an  economic  need.  It  has  succeeded  and  has  continued  to 
hold  its  place,  and  to  gain  ground  because  it  has  occupied  a 
certain  point  of  vantage  in  the  distribution  of  goods.  Its 
future  in  one  form  or  another  in  large  cities  seems  secure. 

Characteristics  of  Department  Store  Merchandising 

Unity. — Many  departments  or  sections  are  under  one  roof. 
Stores  are  not  usually  classed  as  department  stores  unless 
they  have  at  least  a  score  of  departments.  Some  of  the  larger 
establishments  have  a  hundred  or  more.  One  of  the  largest 
is  said  to  have  over  250  sections  or  departments. 


Service. — Special  conveniences  offered  are  to  all  shoppers 
whether  they  buy  or  not.  Under  the  guise  of  "service"  the 
modern  department  store  has  come  to  be  a  sort  of  club  house 
and  amusement  place  for  women.  One  ordinarily  finds  in 
these  stores  rest  rooms,  silence  rooms  for  nerve-tired  shop- 
pers, reading  and  writing  rooms,  restaurants,  information 
bureaus,  post-offices,  telephone  booths,  and  telegraph  stations 
for  the  unrestricted  use  of  all.  In  some  stores  lectures,  demon- 
strations, musical  programs,  moving  picture  shows,  and  even 
operas  and  plays  are  given  frequently.  In  a  few  cases,  the 
department  store  has  served  as  an  employment  agency  for  do- 
mestic help,  as  a  house  and  estate  agency,  and  even,  recently, 
as  a  market  for  corporation  securities.  Some  department 
stores  conduct  banking  departments  accepting  the  deposits  of 
their  customers  and  employees  and  paying  interest  on  these 
deposits,  although  this  form  of  service  is  now  somewhat  under 
a  cloud  because  of  the  recent  failures  of  large  eastern  depart- 


the  department  store 


251 


ment  stores  having  banking  departments.  Hair  dressing  and 
manicure  parlors,  and  children's  barber  shops  are  regular  ad- 
juncts of  the  largest  stores  in  all  cities.  Play  rooms  for  chil- 
dren, lost  and  found  departments,  and  dental  parlors  are  also 
common.  None  of  these  services  have  any  direct  connection 
with  the  sale  of  goods  in  the  store.  Most  are  gratuitous, 
and  where  direct  expenses  are  involved  as  in  the  restaurants, 
hair  dressing,  and  manicure  parlors,  the  charges  made  are 
usually  only  sufficient  to  cover  those  expenses,  and  no  special 
attempt  is  made  to  get  a  profit  therefrom.  All  of  these  services 
are  given,  however,  to  attract  people  to  the  store,  and  to  get 
them  into  the  habit  of  coming,  so  that  their  wants  may  be 
satisfied  by  merchandise  purchased  there. 

Several  special  forms  of  service  in  direct  connection  with 
the  sale  of  goods  are  also  common.  Free  delivery,  sales 
on  credit,  C.  O.  D.  sales,  goods  sent  to  the  homes  of  cus- 
tomers on  approval,  guarantee  of  **money  back  if  not  satis- 
fied," and  "goods  exchanged,"  are  so  common  now  as 
to  merit  no  more  than  a  remark.  While  many  of  these  serv- 
ices are  extended  to  their  customers  by  specialty  "or  one-line 
stores,  none  have  gone  farther  than  the  big  department  stores, 
and  none  could  profitably  do  so. 

Specialized  Advertising. — Specialists  are  employed  in 
the  advertising  department.  The  great  volume  of  adver- 
tising run  by  the  larger  stores  is  intended  to  draw  people  to 
the  store  and  to  facilitate  the  sale  of  goods.  It  is  intended  to 
take  the  place  of  much  of  the  expert  salesmanship  that  might 
otherwise  be  necessary  to  effect  sales.  Department  stores  are 
the  greatest  users  of  newspaper  advertising  space.  W.  C. 
Freeman,  formerly  advertising  manager  of  the  New  York 
Globe,  has  estimated  the  amounts  expended  annually  by  some 
of  the  principal  stores  for  advertising  as  follows  :^ 

^Printers'  Ink,  October  g,  1913- 


252  ECONOMICS  OF  RETAILING 

John   Wanamaker,   Philadelphia $450,000 

John  Wanamaker,  New  York 700.000 

Gimbel,  New  York 700,000 

R.  II.  iMacy  and  Co.,  New  York 350,000 

Altman  s.  New  York 300  000 

Stern  Bros.,  New  York 300,000 

Jordan  Marsh  Co.,  Boston 300,000  plus 

Shepard,    Norwell   Co.,   Boston 300,000  plus 

Houghton  and  Button,  Boston 300,000  plus 

This  expense  is  said  to  amount  to  from  2  to  5  per  cent 
of  the  total  sales  of  the  stores  named. 

Another  feature  about  department  store  advertising  in 
addition  to  its  magnitude,  is  its  specific,  concrete  presenta- 
tion of  information  about  goods.  Style,  quality,  and  price 
have  been  the  lines  along  which  the  chief  appeals  for  busi- 
ness have  been  made;  and  of  these  three,  price  has  been 
the  one  most  emphasized.  Comparisons  of  "Our  special 
price"  with  ''Regular  price,"  now  happily  not  so  much  used 
as  formerly  by  the  largest  stores,  have  been  heralded  in  black 
face  type  for  years  from  one  side  of  the  continent  to  the 
other. 

Bargain  Sales.— The  usual  reasons  for  these  price  offer- 
ings, where  reasons  were  given,  have  sometimes  been  that  the 
store  has  either  overbought  and  wishes  to  unload  at  a  sacrifice, 
or  has  had  some  misfortune  such  as  a  fire  and  must  sell  its 
goods  at  greatly  reduced  prices,  or  more  commonly  that  it 
has  been  especially  fortunate  in  its  purchases.  It  may  almost 
be  said  that  the  larger  part  of  department  store  business  seems 
to  have  been  built  up  on  bargain  advertising.  It  is  certainly 
in  this  field  that  some  of  the  most  remarkable  successes  have 
been  made. 

Miscalculating  Demand.— On  account  of  the  tremendously 
rapid  development  of  machine  production  during  the  last  fifty 
years,  it  has  not  been  possible  for  any  producer  to  predict  the 


THE  DEPARTMENT  STORE 


253 


strength  of  demand  for  the  kind  of  goods  that  he  planned  on 
gettnig  out.  New  industries  have  been  springing  into  the  field, 
competition  has  grown  keen  over  night,  demands  themselves 
have  both  developed  and  changed  rapidly.  Channels  of  dis- 
tribution have  not  been  well  defined  and  not  always  open 
to  all.  In  consequence  of  such  unsettled  conditions,  every 
producer  has  had  to  take  chances  on  the  possibilities  of  mar- 
keting his  goods  successfully.  Many  miscalculations  have 
resulted.  In  such  cases  the  producers  have  been  glad  to  un- 
load their  unprofitable  surpluses  at  even  less  than  the  costs 
of  production ;  in  fact,  they  have  been  glad  to  take  anything 
they  could  get. 

Department  Store  Buying.— Department  stores  with  their 
own  buying  organizations "^able  to  buy  direct  from  producers 
have  been  best  fitted  to  take  advantage  of  these  manufacturers' 
sacrifices.  With  ready  cash  and  the  organization  for  taking 
care  and  disposing  of  such  goods,  the  buyers  of  these  stores 
have  been  able  to  pick  up  many  lots  of  goods  of  this  kind. 
By  their  direct  merchandising  methods,  they  have  found  an 
opening  in  the  economic  system  of  production  and  distribu- 
tion of  goods  that  other  concerns  had  either  failed  to  see  or 
could  not  benefit  from.  Their  function  here  is  to  pick  up 
surplus  stocks  in  the  hands  of  producers  and  dealers,  stocks 
not  wanted  by  the  regular  trade.  Out  of  stocks  thus' bought 
up,  the  department  store  has  been  able  to  make  bargains  an 
actuality. 

Because  acceptable  job  lots  of  this  kind  are  not  always 
available  for  all  of  the  departments  of  a  department  store, 
it  is  sometimes  necessary  to  adopt  other  means  to  get  goods 
at  prices  lower  than  those  paid  by  other  dealers.  The  de- 
partment store  with  plenty  of  capital  has  been  able  to  buy 
for  cash  large  quantities  of  goods  and  get  larger  discounts 
than  would  be  given  to  those  who  buy  only  in  small  quanti- 


254 


ECONOMICS  OF  RETAILING 


THE  DEPARTMENT  STORE 


255 


li 


ii' 


ties.  In  many  cases  these  quantity  discounts  have  been  over- 
large  from  an  economic  standpoint.  The  temptation  of  the 
big  order  and  the  competition  of  other  producers  have  tended 
to  drive  the  supply  prices  down  even  below  the  point  one 
might  reasonably  expect  in  view  of  the  savings  to  the  pro- 
ducer in  getting  rid  of  his  product  in  large  lots. 

In  still  other  cases  the  department  store  buyer  has  been 
able  to  get  his  goods  at  unusually  low  prices  by  ordering 
them  in  large  lots  in  advance  of  manufacture,  thus  lessen- 
ing the  manufacturer's  risk,  and  guaranteeing  work  for  his 
plant  during  seasons  that  might  otherwise  be  dull.  In  these 
ways  the  big  department  stores  have  been  able  to  get  many 
consignments  of  goods  at  figures  that  have  permitted  them 
to  sell  at  bargain  prices  and  still  make  a  good  profit. 

Results  of  Stabilized  Merchandising  Conditions. — But  as 

merchandising  conditions  become  more  stable,  and  as  it  be- 
comes more  nearly  possible  to  predict  the  demand  for  a  cer- 
tain line  of  goods,  either  by  careful  analysis  of  all  conditions 
that  may  affect  it,  or  by  producing  only  to  order,  as  is  now 
largely  done  by  many  concerns  in  the  shoe  and  clothing  trades, 
the  opportunity  of  picking  up  job  lots  of  goods  of  dependable 
quality  becomes  relatively  rare.  Surpluses  of  products  that 
the  producers  cannot  market  through  the  regular  channels  of 
trade  because  of  mistaken  judgment  as  to  demand  are  not  so 
frequent.  Goods  offered  in  this  way  are  now  very  likely  to 
be  defective  or  poor  in  quality.  Defective  goods,  however, 
have  entered  very  largely  into  the  retail  markets,  especially 
through  the  medium  of  the  cheaper  grade  of  department 
stores.  While  these  "goods"  have  been  heralded  *as  bargains,^ 
the  advertising  in  such  cases  does  not  belong  to  the  realm  of 
truthful  merchandising. 

In  some  cases  it  is  possible  that  some  stores  have  gone 
farther  than  this  in  their  advertising,  and  where  no  bargains 


have  existed,  the  advertising  writers  have  conceived  them  in 
their  own  minds  and  proceeded  to  publish  them  as  actual 
realities. 

Untruthful  Advertising  Not  Common.— Untruthful  ad- 
vertising is  not  peculiar  to  department  stores.  Specialty  stores 
have  sinned  in  this  respect  as  much  as  department  stores, 
differing  only  in  the  degree  to  which  they  have  used  advertis- 
ing. Mention  of  the  matter  is  made  here  simply  because  de- 
partment stores  are  such  great  advertisers  as  compared  with 
all  other  forms  of  retailing  establishments.  The  better  classes 
of  stores  are  very  strongly  opposed  to  bargain  advertis- 
ing, and  it  is  even  claimed  by  some  that  the  ''bargain"  as  an 
appeal  is  losing  its  attractions  and  its  power  to  draw  cus- 
tomers. 

"Newspaperdom"  says:  "One  variety  of  He  that  has 
had  its  day  of  effectiveness  is  the  'bargain-sale'  lie.  Ad- 
vertisements of  bargains  are  still  printed,  but  the  public  is 
almost  as  impervious  to  them  as  the  side  of  a  battleship  would 
be  to  the  fire  of  a  battery  of  pea-shooters.  The  delusion  still 
exists  among  many  merchants  that  this  is  not  so,  but  no  such 
delusion  exists  among  the  great  merchants." 

George  Hough  Perry,  former  advertising  manager  of 
John  Wanamaker,  Gimbel  Bros.,  and  Siegel  Cooper,  is  re- 
ported to  have  said  that  "bargain  sales  are  passing  Vapidly 
mto  the  limbo  of  exploded  ideas,  that  all  future  tendencies 
will  be  toward  emphasizing  not  price,  but  what  can  be  had 
for  the  price,  and  that  'bargain'  sales  are  obviously  and  neces- 
sarily built  upon  lies." 

J.  J.  Stokes,  advertising  manager  of  Marshall  Field  &  Co., 
says  that  "nine-tenths  of  all  bargain  advertising  is  made  up  of 
falsehoods  and  exaggerations  and  that  100  lines  of  advertis- 
ing concerning  the  publicity  of  a  business  house  is  worth  100 
pages  of  'bargain'  falsehoods." 


n 


256 


ECONOMICS  OF  RETAILING 


Specialized  Organization. — The  main  factor  of  depart- 
ment store  efficiency  apart  from  its  buying  and  advertising 
powers,  already  referred  to,  is  its  specialized  form  of  organ- 
ization. In  this  respect  the  modern  department  store  differs 
from  the  old  time  general  merchandise  store  as  day  differs 
from  night.  In  the  latter,  there  was  no  specialized  organiza- 
tion. Clerks  sold  goods  in  all  or  nearly  all  departments,  and 
accounts  or  records  were  not  separately  kept.  For  the  most 
part,  when  the  store  made  a  profit,  the  owner  could  only  guess 
what  lines  of  goods  produced  it,  and  his  guess  was  as  likely 
to  be  wrong  as  right.  Possibly  department  store  system 
would  have  been  impracticable  in  the  general  merchandise 
store,  but  the  lack  of  it  was  the  weakness  of  the  latter,  while 
the  presence  of  it  is  the  basis  of  the  peculiar  strength  of  the 
former. 

Each  Department  a  Store. — In  a  department  store,  each 
department  or  section  is  considered  as  a  separate  specialty 
store  or  shop.  Its  accounts  are  kept  separate,  and  under  nor- 
mal conditions  it  must  .stand  on  its  own  feet;  that  is  to  say 
it  must  pay  its  own  expenses,  and  its  prorated  share  of  the 
general  expenditure  for  rent,  light,  heat,  power,  insurance, 
office  up-keep,  and  so  on.  In  addition  to  this  it  must  seek  to 
make  a  net  profit. 

Each  department  has  its  own  organization  for  buying 
and  selling  goods.  This  organization  consists  of  its  man- 
ager or  buyer  and  necessary  assistants  such  as  assistant  buyer, 
head  of  stock,  and  salespeople.  In  these  respects  the  depart- 
ment is  exactly  like  a  specialty  store,  but  the  accounting,  ad- 
vertising, stockroom  work,  credits  and  collections,  handling 
of  the  cash  paid  out  and  received,  and  the  delivery  of  the 
goods  is  done  for  the  individual  department  by  special  depart- 
ments organized  to  serve  all  of  the  merchandise  departments 
in  the  store.    The  specialty  store,  selling  one  line,  has  its  own 


THE  DEPARTMENT  STORE 


257 


Supervision 

Gen'l.  Manager 


Accounfing 


Credits  and 
Cd  lections 


Delivery 


Cans  of  Stone 


5teck  V\fork 


Merchandise 
Dsparfmeni" 


Advertising 


Customers 


I.  Organization  Chart — Specialty  Store 


5upervisic?n 
Qen'l.  Manager 


Accounting 


Cnedits  and 
Collections 


Delivery 


Care  of  5torB 


Stock -poom 
Work 


Advertising 


Menchand  ise  Cbportnnents 


A      B      C      D     L 


dSJ 


H 


Customers 


2.  Organization  Chart—Department  Store 


258 


ECONOMICS  OF  RETAILING 


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THE  DEPARTMENT  STORE 


259 


accounting,  advertising,  credit,  cash,  and  delivery  depart- 
ments, but  in  a  department  store  of  forty  sections,  for  ex- 
ample, there  is  but  one  of  each  of  these  departments  to  serve 
all  of  the  forty  sections. 

Comparative  Organization  Charts.— The  charts  on  page 
257  will  make  these  relations  more  clear  and  indicate  the 
difference  between  specialty  store  organization  and  depart- 
ment store  organization.  In  Chart  i  the  single  merchandise 
department  of  the  specialty  store  is  served  by  all  of  the  sur- 
rounding departments.  In  Chart  2  the  merchandise  depart- 
ments, A,  B,  C,  D,  E,  F,  G,  and  H  are  all  served  by  the  same 
number  of  special  departments,  one  new  official  only  being 
added,  viz.,  the  merchandise  manager.  This  official  acts 
as  a  sort  of  head  buyer  for  all  departments,  apportions  the 
buying  funds  among  them,  advises  the  buyers,  gives  approval 
or  disapproval  to  department  sales  policies,  and  so  on. 

Figure  3  presents  a  typical  department  store  organization 
in  considerable  detail.  Other  illustrations  and  charts  may 
be  found  in  the  books  and  articles  referred  to  in  the  bibliogra- 
phy at  the  end  of  the  chapter. 

Efficiency  of  the  Department  Store. — The  modern  de- 
partment store  is  a  wonderful  business  mechanism.  At  its 
best  it  represents  very  high  efficiency  as  a  trade-getting  and 
profit-making  institution.  Its  advantages  in  competition  over 
the  specialty  or  one-line  stores  lie  in  its  conveniences  for  shop- 
pers, the  many  lines  under  one  roof,  the  special  services  that 
are  so  attractive  to  many  people,  and  the  displays  of  goods  on 
all  sides  in  the  many  different  lines.  Such  displays  suggest 
purchases  to  customers  and  bring  about  sales  that  one-line 
shops  could  not  effect  at  all.  The  department  store  method  of 
distribution  actually  stimulates  new  demand,  by  showing  to 
customers  things  about  which  they  might  not  otherwise  know 
anything.  ^ 


26o 


ECONOMICS  OF  RETAILING 


THE  DEPARTMENT  STORE 


261 


Division  of  Labor. — Another  advantage  of  the  department 
store  is  its  division  of  labor  and  the  employment  of  the  best 
people  obtainable  as  heads  of  departments,  to  plan  and  sug- 
gest schemes  for  carrying  on  the  store  work.  In  the  best 
department  stores  great  care  is  exercised  in  the  selection  of 
employees,  in  training  them  specifically  for  their  work,  and 
in  placing  them  where  they  will  be  most  efficient.  For  the 
routine  work  the  department  store  is  able  to  get  along  with 
the  services  of  cheaper  help  than  most  one-line  stores,  just 
because  of  the  fine  division  of  labor  and  because  the  work  of 
each  employee  is  carefully  planned  and  standardized.  Heads 
of  departments  draw  salaries  and  incomes  that  average  con- 
siderably higher  apparently  than  the  average  incomes  of 
specialty  store  managers.  Buyers  receive  from  $2,500  up 
to  $25,000  per  year,  and  in  some  of  the  better  stores  $5,000 
to  $10,000  is  the  average.  For  the  higher  positions,  such  as 
merchandise  manager  and  store  superintendent,  even  higher 
salaries  are  paid.  It  is  known  that  two  or  three  department 
stores  have  paid  salaries  as  high  as  $50,000  per  year.  The 
average  salaries  for  the  rank  and  file  are,  however,  somewhat 
low,  and  the  reason  for  this  is  largely  that  the  type  of  per- 
sonal efficiency  required  is  not  very  high. 

A  change  is  to  be  noted  in  this  respect,  however,  for  as 
competition  grows  keener,  the  demand  for  personal  salesman- 
ship and  skilful  personal  management  of  every  detail  in- 
creases. No  plan,  no  matter  how  well  worked  out,  can  sub- 
stitute automatic  service  for  human  service  in  dealing  with 
customers.  Careful  planning  goes  a  long  way,  and  in  the  past 
twenty-five  years  has  progressed  rapidly,  but  when  the  limits 
of  mechanical  devices  and  system  are  reached,  store  managers 
will  have  to  give  their  attention  to  bringing  up  the  standard  of 
their  employees  by  some  sort  of  training  or  apprenticeship 
perhaps,  but  more  likely  by  systematic  education  for  this  kind 
of  work. 


Advantage  of  a  Central  Location. — The  department  store 
usually  has  the  advantage  of  being  the  centrally  located  store 
in  the  retail  district.  The  architecture,  especially  in  its  mod- 
ern types,  is  in  every  way  helpful  to  its  purpose  of  selling 
goods.  Moreover,  it  has  a  prestige  in  the  public  mind,  care- 
fully cultivated  in  all  cases,  well  earned  in  some  cases,  that 
goes  far  towards  making  it,  as  a  popular  institution,  most 
successful. 

Big  business  appeals  to  the  imagination  of  the  people  of 
the  twentieth  century,  especially  to  the  people  of  the  middle 
and  lower  classes.  The  big  store  suggests  class  and  distinc- 
tion. To  trade  there  to  a  certain  extent  confers  distinction. 
The  big  store's  automobile  delivery  truck  calling  at  one's  resi- 
dence heightens  this  effect. 

On  the  other  hand,  in  the  great  cities,  a  large  part  of  the 
trade  of  the  ultra-rich  and  fashionable  goes  not  to  the  de- 
partment stores  but  to  the  exclusive  little  specialty  shops. 
The  department  store  is  fitted  to  transact  business  with  the 
masses,  but  with  certain  exceptions,  not  with  the  classes.  The 
department  store  cannot  as  a  rule  build  a  large  enough  trade 
on  exclusive  lines  to  make  the  business  pay.  Handling  such 
goods  is  more  the  function  of  specialists  who  have  unusual 
taste  and  fitness  for  selecting  goods,  displaying  them,  and 
giving  the  service  that  touches  the  vanity  of  wealthy  shoppers. 
Department  store  employees  are  not  commonly  equipped  to 
do  this  well,  and  where  an  attempt  is  made  to  get  such  trade, 
it  is  usually  by  classifying  the  stock  into  departments  of  higher 
and  lower  grade  goods,  providing  special  entrances  from  the 
outside  of  the  store  leading  to  each,  and  by  employing  sales- 
people especially  fitted  to  serve  in  the  more  high  class,  exclu- 
sive lines. 

Such  trade  pays  well  when  it  can  be  obtained,  but  at 
best  such  customers  are  fickle  in  their  demands,  peculiarly 
subject  to  whim,  careless  in  their  obligations,  and  often  un- 


262 


ECONOMICS  OF  RETAILING 


THE  DEPARTMENT  STORE 


263 


ii 


reasonable.  Only  a  few  department  stores  have  successfully 
handled  this  class  of  trade.  The  department  store  is  essen- 
tially a  store  for  the  masses. 

Economies  of  the  Department  Store. — There  are  a  num- 
ber of  economies  in  department  store  management  not  possi- 
ble in  the  specialty  store.  Having  one  accounting  department, 
one  advertising  department,  one  delivery  department,  one 
credit  department,  and  so  on,  makes  it  possible  to  serve  all  of 
the  departments  or  sections  in  the  store.  How  much  these 
savings  amount  to  cannot  be  stated  exactly,  as  there  are  no 
figures  available,  but  it  would  seem  that  certain  advantages 
must  result  from  this  arrangement.  An  efficient  credit  de- 
partment serving  forty  or  fifty  subsidiary  merchandising  de- 
partments is  able  to  accept  more  credit,  and  take  more  chances, 
because  it  is  in  a  position  to  employ  more  effective  collection 
methods,  and  is  better  able  to  enforce  payment  of  slow  or 
doubtful  accounts.  A  specialty  store'  would  either  have  to 
refuse  credit  to  a  much  larger  number  of  people  seeking  it 
or  else  shoulder  a  much  larger  loss  from  bad  debts,  simply 
because  it  cannot  give  the  special  attention  to  credits  that  the 
department  store  credit  manager  is  expected  to  and  does 
give. 

In  a  certain  sense  these  special  departments,  credit,  deliv- 
ery, advertising,  and  so  on,  are  giving  service  to  a  combina- 
tion of  co-operative  merchandising  establishments.  The  ad- 
vantages urged  in  favor  of  co-operative  delivery  for  retail 
stores,  for  example,  are  in  a  measure  realized  in  the  depart- 
ment store. 

On  the  other  hand,  some  questions  may  occur  as  to  just 
how  far  these  economies  go,  and  to  what  extent  they  are  coun- 
terbalanced by  the  disadvantages  of  aggregation,  such  as  a 
department  store  represents.  The  average  cost  of  doing  busi- 
ness in  a  department  store  seems  to  be  considerably  higher 


than  the  average  for  one-line  establishments,  of  course  ex- 
cepting the  high  cost  of  the  few  exclusive  shops  catering  to 
the  super-rich.  Turnover  by  departments  is  about  the  same  as 
for  specialty  stores.  In  fact  well-managed  specialty  stores 
frequently  have  a  faster  rate  of  turnover. 

On  comparing  the  items  of  expense  in  department  stores 
with  those  of  specialty  stores  one  finds  that  rent  is  higher, 
advertising  is  higher,  delivery  is  higher,  salaries  run  about  the 
same,  and  bad  debt  losses  about  the  same.^ 

High  Expenses  of  Department  Stores. — Why  rent  aver- 
ages higher  is  explained  in  another  chapter.  Advertising  is 
higher  because  the  department  store  must  reach  out  farther  for 
business.  It  has  many  more  competitors  of  many  kinds  than  the 
average  one-line  store.  It  uses  its  advertising  to  assist  in 
making  quick  sales.  In  a  measure  it  substitutes  skilled  adver- 
tising for  skilled  salesmanship.  An  advertising  expense  of 
from  23^  to  5  per  cent  of  sales  is  not  uncommon  in  depart- 
ment stores,  but  above  the  average  for  specialty  stores.  De- 
livery though  done  for  a  number  of  departments,  hence 
cheaper  than  if  done  for  a  single  shop  doing  business  with  the 
same  customers,  tends  to  be  higher  because  the  department 
store  delivers  over  a  much  wider  territory  than  the  average 
one-line  store,  and  probably  delivers  a  much  larger  percentage 
of  the  goods  purchased. 

'  Many  popular  writers  on  department  stores  have  assumed  that  the  department 
store  method  of  distributing  goods  is  much  more  economical  than  any  other.  It  is 
remarkable  that  so  many  have  taken  this  view  with  hardly  a  fact  to  warrant  it.  Some 
official  bodies  of  a  public  nature  have  expressed  the  same  view  upon  equally  ground- 
less bases.  As  an  example  of  this  sort  of  thinking,  the  United  States  Industrial 
Commission  in  its  final  report   (Vol.    19,  page  549)    may  be  quoted: 

"If  rightly  managed,  the  department  store  must  be  able  to  make  great  economies 
in  rent,  cost  of  superintendence,  office  expenses,  and,  possibly,  in  clerk  hire." 

But  in  the  testimony  given  before  the  commission  there  was  nothing  to  lead  to 
such  a  conclusion.  For  example,  S.  M.  Woodward,  a  Washington  department  store 
manager,  testified  as   follows   (Vol.   VII,   page   736): 

"Q.  You  believe  you  can  sell  goods  cheaper  than  the  one-line  stores  can,  or 
do  you  know  that  you  can? 

"Mr.  Woodward's  answer:  'I  do  not  think  we  ever  claimed  that.  I  know  that 
the  quantity  of  goods  that  we  purchase  in  many  lines  enables  us  to  do  that.'  " 

A   few  moments  before   Mr.   Woodward   was   asked: 

"Does  the  department  store,  from  the  economical  standpoint,  require  less  help 
to  do  the  same  business  than  in  the  old  way  of  several  stores?" 


i 


H 


264 


ECONOMICS  OF  RETAILING 


!• 


Another  factor  of  expense  in  department  stores  that  places 
them  at  a  disadvantage  is  the  gratuitous  service  they  give  to 
all  who  come.  Competition  forces  department  stores  into 
these  things.  There  is  no  escape.  The  tendency  seems  to  be 
to  add  more  and  more  of  it.  Trade  must  be  gained,  but  the 
only  way  to  gain  it  is  by  getting  the  people  to  come  to  the 
store.  The  service  factors  bring  people  to  the  store  and  must 
therefore  be  employed.  The  more  special  service  that  is 
offered  by  one  store,  the  more  other  stores  must  offer  in  order 
to  hold  their  trade  and  gain  customers.  It  is  hard  to  see  just 
where  this  tendency  is  going  to  end. 

The  expenditure  for  salaries  in  department  stores  runs 
about  the  same  as  in  specialty  shops.  This  can  probably  be 
explained  by  the  high  salaries  paid  to  the  managers,  and  by 
the  fact  that  it  is  difficult  in  a  big  store  to  apportion  em- 
ployees to  the  various  departments  in  the  exact  proportions 
necessary  to  do  the  work  properly.  More  or  less  waste  of 
time  occurs,  all  of  which  the  store  must  pay  for.  Small 
stores  have  such  losses  too,  but  the  work  is  not  so  fully 
divided  into  departments,  and  employees  not  employed  in 
selling  can  usually  be  set  to  work  at  something  else.  This 
item  of  loss  is  not  by  any  means  uniform.  Efficient  stores 
both  large  and  small  attempt  to  reduce  it  to  a  minimum,  but 
it  seems  that  small  stores  are  able  to  do  so  more  fully  than 
the  big  department  stores. 

"A.  No;  it  requires  more.  That  evidently  does  not  seem  reasonable  to  you, 
but  we  have  to  wait  upon  people  now  with  specially  trained  help  in  more  than  half 
of  our  departments.  Of  60  to  80  per  cent  of  them  that  is  true.  In  other  words, 
a   customer   is   not   a,  customer,   unless   she   is   waited   upon    intelligently." 

Later  Mr.  Otto  Young,  manager  of  "The  Fair,"  was  asked  (Vol  VII,  page  696): 
"Q.  What  is  the  economy  of  many  departments  under  one  management?" 
"A.  The  economy  is  largely  in  the  quantity  of  goods  that  we  can  purchase,  as 
against  the  small  merchant.  We  buy  our  goods  for  cash.  No  department  store  that 
has  to  buy  goods  on  credit  ever  made  a  success.  Department  stores  do  away  largely 
with  the  middlemen,  the  jobbers.  They  buy  nine-tenths  of  their  goods  direct  from 
the  manufacturer;  they  do  not  have  to  pay  two  or  three  profits  before  the  goods 
get  to  them.  A  man  that  wants  to  buy  a  dozen — a  manufacturer  would  not  bother 
with  him  to  sell  him  a  dozen;  he  must  go  to  a  jobber.  That  jobber  must  make 
10  or   15  per  cent  on  the  goods;   therefore  they  cost  the  buyer  more  money." 

Other  department  store  managers  gave  similar  testimony,  yet  the  Industrial  Com- 
mission concluded  that  "If  rightly  managed,  the  department  store  must  be  able  to 
make  great  economies  in  rent,  cost  of  superintendence,  office  expenses,  and,  possibly, 
in  clerk  hire!" 


THE  DEPARTMENT  STORE 


265 


Wasteful  Leaks.— The  department  store,  even  when 
planned  for  the  highest  efficiency,  is  a  place  where  there  may 
be  a  thousand  leaks.  Hired  employees  are  proverbially  less 
diligent  and  watchful  than  people  in  business  for  themselves. 
Carelessness,  loss  of  materials,  soiling  materials,  spoilage, 
leakage,  breakage,  and  so  on,  are  likely  to  occur  more  freely 
in  the  big  store  than  in  the  small  store.  Only  eternal  vigi- 
lance can  keep  such  losses  down,  and  there  seems  to  be  more 
danger  of  slackening  in  vigilance  under  hired  eyes  than  under 
proprietor's  eyes.  The  department  store  must  spend  much 
money  and  time  in  developing  its  system,  in  making  out  its 
accounts,  and  in  working  up  statistics  to  show  just  how  the 
concern  is  working,  while  in  the  small  store,  the  manager- 
owner  can  carry  much  of  such  information  in  his  head,  and 
need  spend  no  time  in  working  it  out  on  paper.  This  economy 
is  probably  carried  too  far  by  most  small  retailers.  Perhaps 
much  could  be  gained  by  the  specialty  store  manager  by  bor- 
rowing something  from  the  department  store  manager's 
thorough-going  manner  of  getting  at  the  exact  facts  of  the 
business.  But  whether  this  is  true  or  not,  the  fact  remains 
that  the  department  store  spends  a  lot  of  money  in  getting  up 
information  that  the  small  one-line  retailer  is  getting  along 
without. 

Poor  Salesmanship  General.— Finally,  the  department 
store  type  of  salesmanship  is  usually  weak.  There  are  excep- 
tions and  notable  ones,  but  the  general  rule  is  poor  salesman- 
ship. The  specialty  store  that  attempts  to  be  up-to-date  dif- 
fers from  department  stores  markedly  in  this  respect,  although 
both  classes  of  stores  would  benefit  largely  if  systematic  im- 
provement and  education  of  salespeople  could  be  effected.  As 
it  is,  much  of  the  efficiency  of  the  department  store  gained  by 
its  location,  its  window  displays,  its  advertising,  Its  thorough 
and  systematic  sales  plans,  is  lost  simply  because  the  salesman 


i 


266 


ECONOMICS  OF  RETAILING 


fl 


41 


fails  in  his  important  work  with  the'  customer.  Not  only  are 
opportunities  for  making  sales  lost  through  this  failure,  but 
when  sales  are  made,  they  are  often  wrongly  made.  The 
wrong  things  are  sold  and  when  the  right  things  are  sold 
they  are  sent  out  improperly  fitted  and  demonstrated.  The 
result  is  discomfort,  disutility,  and  dissatisfaction.  The  re- 
tail store  whose  great  social  function  it  is  to  serve  the  pub- 
lic or  that  much  of  the  public  that  comes  to  it,  fails  to  per- 
form its  service  in  a  creditable  way  because  the  employee 
whose  duty  it  is  to  represent  the  store  in  dealing  with  the 
customer  does  not  know  how  his  work  should  be  done.  Bad 
retail  salesmen  are  plentiful,  but  more  so  in  department  stores, 
it  seems,  than  in  specialty  or  one-line  stores.  The  fault  is 
not  the  salesman's,  but  rather  it  is  that  of  the  stores  in  neg- 
lecting to  improve  the  human  factor,  and  that  of  society,  in 
not  providing  education  in  its  schools  for  people  who  enter 
this  line  of  work.  i 

Bibliography 

Adams,  S.  H.     The  Department  Store.     Scrihner's  Magazine,  2i  .-4. 

Big  vs.  Little  Store.     Printers'  Ink,  April  25,  1912. 

Brewer,  F.  N.     Some  Features  of  Department  Store  Management. 

Ann.  Am.  Acad.     19:320. 
Butler,  E.  B.     Saleswomen  in  Mercantile  Stores,  Ch.  IV.     Charities 

Publication  Committee,  New  York.     1912. 
Cherington,    P.    T. 

Advertising  as  a  Business  Force,  page  158  ff.     Doubleday    Page 

and  Co.,  New  York. 

The  Advertising  Book.  Doubleday  Page  &  Co.,  New  York,  1916. 
Cross,  J.  H.     Points  on  Merchandising  Advertised  Products  Through 

Department  Stores.  J.  H.  Cross  Co.,  Philadelphia,  Pa.  1918. 
Daniels,  Wm.  Cooke.  The  Department  Store  System,  Denver,  1900. 
Davis,   H.     The   Department   Store   at   Close   Range.     Everybody's, 

17:312. 
Dennis,  John,  Jr.     Marshall  Field.     Everybody's,  14:291. 


THE  DEPARTMENT  STORE 


267 


Department  Store  and  Its  Opportunities  for  Boys  and  Young  men. 

The  Vocation  Bureau,  Boston,  1912. 
Department  Store  in  the  East.    Arena,  22:321. 
Golden  Book  of  the  Wanamaker  Stores,   1861-1911. 
Modern  Merchandising,  Vol.  I. 

Basch,  J.     The   Merchandiser   in   the   Department   Store. 

Stokes,  J.  J.     Organization  of  the  Department  Store. 

Wanamaker,   John.     The   Evolution   of   a   Mercantile    Business. 
Modern  Merchandising,  Vol.  V. 

Stokes,  J.  J.     The  Department  Store. 
Modern  Merchandising,  Vol.  VIII. 

Schneider,  J.     Department  Store  Advertising. 
Nystrom,    P.    H.     Retail    Store    Management.     La    Salle    Extension 

University,   Chicago,   1917. 
Phillips,   W.   B.     How  Department   Stores  Are   Carried   On.     1900. 
Private  Department  Store  Brands  vs.  Nationally  Advertised  Brands. 

Printers'  Ink,  October  31,  1912. 
Puffer,  J.  Adams.     Vocational  Guidance,  Ch.  XII.     Rand,  McNally 

and  Company,  Chicago.     1913. 
Richardson,    A.    S.     The    Modern    Woman's    Paradise.     Woman's 

Home   Companion,    Sept.,    191 1. 
Selling   Forces.     Curtis    Publishing    Company.     Pages    103-132. 
Swinney,  John   B.    Merchandising.     Alexander   Hamilton   Institute, 

New  York.     19 17. 
U.  S.  Industrial  Commission,  Vol.  VII,  1900. 

Testimonies   of   Messrs.    S.   W.   Woodward,   John   Wanamaker, 

Otto  Young,  and  Chalifoux. 


CHAPTER  XVI 

CHAIN-STORE  SYSTEMS 

Origin  of  Chain  Stores. — A  chain-store  system,  as  the  term 
impHes,  is  an  organization  composed  of  a  number  of  retail 
stores  operating  under  one  management.  There  are  many 
such  organizations  which  have  existed  for  a  long  time,  but 
during  the  last  thirty  years  there  has  been  a  marked  develop- 
ment both  in  their  size  and  their  number.  The  chain- 
store  system  of  today  is  a  typically  modern  factor  in  the  dis- 
tribution of  goods/ 

It  is  estimated  that  there  are  now  more  than  4,000  chain- 
store  systems  in  the  United  States,  and  that  in  these  chains  there 
are  in  excess  of  65,000  stores.  New  York  alone  has  nearly 
6,000  chain  stores.  Several  estimates  indicate  that  chain  stores 
now  do  about  6  per  cent  of  the  total  retail  trade  of  the  United 
States. 

Number  of  Chain  Stores. — There  are  over  200  drug  store 
chains  in  the  country,  although  many  of  them  have  only  two  or 
three  stores  in  the  organization.  There  are  over  1,300  grocery 
chains,  754  dry  goods  and  millinery  chains,  and  179  clothing  store 
chains,  each  made  up  of  five  or  more  stores. 


*  Dates  of  establishment  of  som'^  of  the  great  chain-store  systems: 

Great   Atlantic   &   Pacific   Tea   Co 1858 

Jones   Bros.  Tea   Co 1 872 

F.   W.    Woolworth   Company    1879 

Jas.   Butler   Company    1 882 

Hanan    Shoe   Stores    1885 

Acme  Tea   Stores    188.S 

(.Now  a  part  of  American  Stores  Company) 

New  York  &  London  Drug  Co 1897 

Cannon    Stores     1 899 

United    Cigar    Stores    1901 

Penney    Stores    1901 

Duke  C.    Bowers  Stores    1902 

United   Drug   Co 1903 

268 


CHAIN-STORE  SYSTEMS  269 

Chain-Store  Systems  in  the  United  States 

Grocery  Chain  :  Stores 

Great  Atlantic   and  Pacific  Tea  Co.,  Jersey  City...  4,453 

American  Stores  Co.,  Philadelphia 1,223 

(Includes  Acme  Tea  Co.,  Robinson  and  Crawford, 
Bell  Co.,  Childs  Grocery  Co.,  and  Chas.  M.  Dun- 
lop  Co.,  all  having  their  headquarters  originally  in 
or  near  Philadelphia.) 

Kroger  Grocery  and  Baking  Co.,  Cincinnati '   400 

Jones  Bros.  Tea  Co ^^^ 

Piggly  Wiggly,  Inc ......'.'.'.'.  248 

James  Butler  Grocery  Co.,  New  York 238 

M.  O'Keefe,  Inc.,  Gardner,  Mass 146 

Wm.    Butler,   Philadelphia 140 

National   Grocery   Co.,   Jersey   City 126 

Direct  Importing  Co.,  Inc.,  Boston 176 

Thos.    Roulston,    Brooklyn 121 

John  T.  Connor  Co.,  Boston 200 

Five  and  Ten  Cent  Stores: 

F.   W.   Woolworth   Co i  120 

C.  S.  Kresge  Co 'j  75 

S.   H.  Kress  and  Co jaa 

J.    G.   McCrory   Co j -q 

Tobacco  and  Cigar  Stores: 

United   Cigar   Stores" j  200 

A.  Schulte   'i2r 

Drug  Chains: 

Liggett-Riker-Hegeman  Co.,   New  York 250 

Dow  Drug  Co.,  Cincinnati ^2 

Owl  Drug  Company,   San   Francisco 32 

Squire  Drug  Co.,  Syracuse,  N.  Y [  20 

Marshall  Drug  Co.,  Cleveland [][\  i^ 

Sun  Drug  Co.,  Los  Angeles j-. 

Day  Drug  Co.,  Akron,  O 12 

Standard  Drug  Co.,  Cleveland,  O *  1 1 

Hook  Drug  Co.,  Indianapolis jq 

Shoe  Chains: 

W.  L.  Douglas  Shoe  Co.,  Brockton,  Mass 105 

R.  H.  Long,  Framingham,  Mass 82 

Regal  Shoe  Co.,  Boston \  ^g 

200  \Itt\  Vn"'Ih^  fe'■/*Q!■^'  ^°"W^"y  of  America  operates  its  1200  stores  in  nearly 
fubsidiarv  to  th!  Vt  ^^"^  States.  Some  of  these,  however,  are  owned  by  companies 
Scores  oTn.!  United  Cigar  Stores  Company  of  America,  such  the  United  Cigar 
Rhode  Island       ^^'^^^'  ^^^''  "'"°*''   ^"'^   ^"^*^^   ^»^^'"   Stores   of 


270  ECONOMICS  OF  RETAILING 

Honover  Shoe  Co.,  New  York  ..••«•••  i  •  ••««..•»•* »  52 

Florsheim  Shoe  Co.,  Chicago 30 

Sorosis  Shoe  Co.,   Brooklyn 30 

Hanan  and  Son,  New  York 18 

Beck  Shoe  Co.,  New  York 15 

Hat  Stores: 

Kaufman  Bros.,  New  York 40 

Truly    Warner,    New    York 24 

Irving  Hat  Co.,  New  York 24 

Sarnoff  Bros.,  New  York 16 

General  Merchantdise  and  Department  Stores: 

J.  C.  Penny  Co 297 

Mercantile  Stores,  Inc 27 

Associated  Dry  Goods  Corporation 9 

May  Department  Stores 4 

Other  chains  are  those  dealing  in  confectionery,  jewelry, 
meats,  dairy  products,  furniture,  clothing,  hardware,  auto- 
mobiles and  supplies,  millinery,  corsets,  flowers,  etc. 

Chain-Store  Systems  in  Europe  ' 

Food  Stores  or  Shops:  Shops 

Lipton's   Ltd 4^9 

Home  and   Colonial   Stores 688 

Maypole  Dairy  Co.,  Ltd 835 

Shepherd's  Ltd 100 

Pearks,  Ltd 200 

T.  Seymour,  Mead  and  Co.,  Ltd 56 

United  Kingdom  Tea  Co.,  Ltd 25 

Lyons   and   Co.,    Ltd 170 

Aerated  Bread  Co.,  Ltd 140 

Express  Dairy  Co.,  Ltd 103 

Eastman's  Ltd 800 

British  Tea  Table  Co 

Alfred  Pearce  Tea  Shops 

Pearce  and  Plenty 

Kaiser's  Kaffee  Geschaft,  Germany 1,000 

Drug  Stores: 

Liggett's  International  (Formerly  Boots  Ltd.) 637 

Parke's  Drug  Stores,  Ltd 34 

Lewis   and    Burrows,    Ltd 25 

Henry    Hodder,    Ltd ^7 

Thompson  and  Capper   10 

»  Except  where  otherwise  specified  these  are  in  England. 


CHAIN-STORE  SYSTEMS  271 

Shoe  Shops: 

Freeman,  Hardy  and  Willis 460 

Lilley   and   Skinner 75 

Public  Benefit  Boot  Co 120 

S.   Hilton  and   Sons    129 

Stead  and  Simpson,  Ltd 235 

W.  Abbott  and  Sons,  Ltd 13 

W.  Abbott  and  Sons,  Ltd.,  France 7 

A.  and  W.  Paterson 42 

Greenlees   and    Sons 165 

John  Greenlees   12 

Tobacco  Shops: 

Salmon  and  Glucksteim,   Ltd 139 

Alfred  Baker  and  Co.>  Ltd 49 

Department  Stores  : 

Tietz  Department  and  Dry  Goods  Stores,  Germany..  88 

Chain-store  systems  may  be  classified  according  to  owner- 
ship as  follows: 

1.  Retailers'   chains,   such  as  the   following: 

United  Cigar  Stores 
Owl  Drug  Co. 
Child's  Restaurants 

2.  Jobbers'  chains 

Difficult  to  give  examples.     Ownership  hidden  as  a 
rule. 

3.  Manufacturers'  chains,  such  as  the  following: 

W.  L.  Douglas  Shoe  Co. 

Singer  Sewing  Machine  Co. 

Huyler's 

Standard  Oil  Co.  Gasoline  Stations 

How  the  Chains  Developed.— Retailers'  chains  have  in 
many  cases  been  formed  simply  by  gradual  expansion,  the 
owner  beginning  with  one  store  and  adding  others  as  cir- 
cumstances permitted.  Many  retailers  have  been  so  success- 
ful with  their  first  store  that  they  have  established  branches, 
sometimes  conducted  in  co-operation  with  the  parent  store 
and  sometimes  independently. 


2^2 


ECONOMICS  OF  RETAILING 


In  a  few  noteworthy  instances  retailers'  chains  have  been 
formed  by  the  estabhshment  of  a  corporation  with  the  pur- 
pose of  acquiring  and  conducting  a  number  of  retail  stores 
under  a  definite  chain-store  plan  of  organization. 

In  still  other  cases  chains  have  been  formed  by  the  union 
of  several  retailers  into  an  organization,  usually  of  corporate 
form,  each  retailer  taking  stock  in  the  company,  and  in  re- 
turn permitting  his  store  to  pass  into  the  new  organization. 
Some  of  these  retailers'  co-operative  chains  have  enormous 
memberships. 

The  Object  of  Chains. — The  object  in  view  in  the  organ- 
ization of  retailers'  chain-store  systems  has  been  largely  to 
reap  the  profits  of  increased  buying  power,  of  heightened 
efficiency  in  advertising,  of  better  handling  of  credits  and 
collecting,  and  of  more  profitable  methods  in  handling  and 
selling  merchandise.  For  many  merchants  who  have  acquired 
or  established  branch  stores,  the  additional  store  units  have 
served  as  a  means  of  investment  for  surplus  funds  and  as  a 
field  for  the  exercise  of  executive  ability  not  fully  taken  up 
in  the  single  institution. 


The  Advantage  of  Buying  in  Bulk. — The  ability  to  buy 
for  less  than  the  ordinary  retailer  can  buy,  is  commonly  ac- 
cepted as  the  chief  advantage  of  the  chain  store.  In  systems 
where  the  buying  is  done  for  all  oi  the  stores  from  a  central 
office  or  by  organization  buyers,  it  is  obvious  that  their  de- 
mand for  quality  commands  the  strongest  interest  of  produc- 
ers and  wholesale  suppliers.  In  a  competitive  market  such 
buyers  are  usually  able  to  get  the  lowest  possible  prices  and 
are  able  to  profit  by  every  possible  quantity  discount. 

Frequently  the  chain-store  buyers  pass  over  the  whole- 
salers and  buy  direct  from  producers,  in  fact,  perform  their 
own  jobbing  functions.     In  such  cases  they  are  usually  ac- 


CHAIN-STORE  SYSTEMS 


273 


corded  the  prices  made  to  jobbers  and,  if  current  reports  be 
true,  are  sometimes  given  even  lower  prices."  Producers 
feel  under  necessity  to  make  every  possible  concession  for 
the  reason  that  the  buyer  for  a  large  chain  represents  a  pow- 
erful factor  in  distribution,  one  whose  future  trade  is  con- 
sidered worth  fighting  for,  and  one  who  can  easily  transfer 
his  trade  from  place  to  place.  The  competition  for  the  chain- 
store  business  is,  therefore,  keen. 

Chain  Stores  and  Jobbers.— Some  of  the  chain-store  sys- 
tems carry  on  their  jobbing  functions  much  the  same  as  an 
ordinary  jobbing  house.  Warehouses  are  provided,  and 
goods  are  stored,  and  delivered  to  the  various  stores  only  upon 
purchase  and  charge.  Goods  charged  to  any  unit  store  bear 
a  percentage  burden  of  buying  and  warehousing  expense,  cor- 
responding in  a  measure  to  the  margins  added  by  regular  job- 
bers to  the  costs  of  their  goods  when  selling  to  retail  dealers. 
In  groceries  this  margin  is  said  to  run  from  23^  to  6  per  cent 
of  the  value  of  the  goods.  In  other  cases  the  burden  of  the 
buying  expense  is  prorated  among  the  stores  directly,  some- 
times in  proportion  to  their  sales,  sometimes  in  proportion 
to  their  ability  to  stand  the  charge. 

Jobbers^  Chains.-Jobbers'  chains  have  come  into  exis- 
tence in  various  ways.  In  some  cases,  jobbers  have  been 
forced  to  buy  out  retail  stores  from  certain  of  their  retail 
debtors  to  save  themselves  from  loss  such  as  would  occur  if 
the  store  were  to  go  on  in  the  hands  of  the  former  owners 
and  managers.  A  good  many  jobbing  houses  have  a  number 
of  retail  stores  that  they  virtually  own  and  which  they  are 
nursing  along  in  the  hope  of  building  up  the  business  or  until 
a  competent  manager  can  be  found  who  will  buy  the  store. 
Management  of  these  stores  calls  for  the  same  methods  and 

*Hurd  and  Zimmerman  in  Printers'  Ink,  November  19.  1914,  page  64  ft 


274 


ECONOMICS  OF  RETAILING 


practices  as  are  required  in  other  chain  systems.  In  some 
cases  when  breaking  into  new  territory,  jobbers  are  forced  to 
acquire  stores  of  their  own  in  order  to  find  local  outlets  for 
their  goods.  Stores  already  in  .such  localities  may  not  will- 
ingly take  on  new  lines,  and  a  jobbers'  own  store  system  may 
be  the  only  means  of  reaching  the  consumer. 

In  still  other  cases,  the  jobber  may  find  his  trade  slipping 
from  him  either  because  of  cut- throat  competition  with  other 
jobbers,  or  because  manufacturers  are  selling  directly  to  re- 
tailers. In  the  ordinary  course  of  events  either  of  these  pro- 
cesses might  eliminate  the  jobber.  To  save  himself  and  to 
insure  a  constant  market,  his  only  recourse  may  be  to  estab- 
lish a  chain  of  retail  stores  to  handle  his  goods.  Tliis  adap- 
tation of  the  jobber  to  new  conditions  is  going  still  farther 
in  a  few  instances.  Not  only  are  chains  of  stores  acquired 
but  also  manufacturing  plants,  so  as  to  assure  both  a  market 
and  a  product  to  place  on  the  market.  Jobbers  thus  have 
become  both  retailers  and  manufacturers,  as  well  as  whole- 
salers. It  seems  likely  that  this  integration  of  distributive 
processes  is  likely  to  go  on  in  several  lines,  those,  particularly, 
in  which  the  jobbing  functions  are  diminishing  in  importance. 

Manufacturers'  Chains.— There  are  a  number  of  manufac- 
turers' chain-store  systems,  nearly  all  of  which  had  their 
origin  in  an  inability  to  find  a  satisfactory  market  through 
the  regular  channels  of  trade.  Among  the  lines  of  goods  rep- 
resented in  manufacturers'  chains,  one  finds  several  brands  of 
shoes,  confectionery,  baked  goods,  hats,  gasoline  and  kerosene, 
sewing  machines,  cash  registers,  adding  machines,  typewrit- 
ers, office  furniture,  automobile  supplies,  corsets,  gloves,  sport- 
ing goods,  phonographs,  paper  novelties,  etc.  Some  of  these 
goods  probably  could  not  be  marketed  through  regular  retail 
stores.  Others  are  not  so  marketed  because  of  dissatisfac- 
tion due  to  any  one  of  several  causes,  such  as  competition 


CHAIN-STORE  SYSTEMS 


275 


with  other  goods  on  dealers'  shelves;  price-cutting  among 
dealers  on  the  manufacturer's  standardized  lines;  inability  of 
the  average  retailer  and  retail  salesman  to  give  intelligent 
salesmanship  to  the  line;  unwillingness  of  the  average  re- 
tailer to  put  in  a  complete  line  such  as  the  manufacturer 
considers  necessary  to  give  the  consumer  a  fair  idea  of  his 
goods;  and  unwillingness  or  inability  of  the  average  retailer 
to  give  the  additional  service  sometimes  found  necessary  to 
make  sales  stick. 


Hazards  of  the  Manufacturer. — It  is  probable  that  scarcely 
any  manufacturer  desires  to  conduct  his  own  distributive  sys- 
tem if  the  service  obtained  from  the  regular  channels  is  at  all 
satisfactory.  A  chain  of  retail  stores  ties  up  a  great  deal  of 
capital.  In  some  lines  it  takes  several  times  as  much  capital 
to  market  the  goods  as  to  manufacture  them.  John  H. 
Hanan,  of  Hanan  &  Son,  states  that  it  takes  three  times  as 
much  capital  to  conduct  the  chain  stores  as  it  does  to  run  the 
factories  that  supply  them.^  The  management  of  a  chain  in- 
volves grave  problems.  The  chances  of  failure  are  high. 
The  profits  from  retailing  are,  on  the  whole,  not  so  great 
as  those  from  manufacturing,  considering  both  under  favor- 
able circumstances.  In  spite  of  these  drawbacks  some  of  the 
manufacturers'  chains  are  the  best  examples  of  present  day 
efficient  chain-store  management.  It  is  altogether  probable 
that  the  future  will  see  many  more  such  organizations. 

Consumers'  Co-operative  Chains. — There  is  another  type 
of  chain-store  organization  that  might  properly  be  discussed 
under  this  heading,  but  which  must  be  omitted  here.  This  is 
the  consumers'  co-operative  chains.  Such  concerns  have  not 
as  yet  made  much  progress  in  this  country,  but  in  Europe  they 
are  numerous  and,  according  to  most  reports,  very  success- 

^  Printers  Ink,  March  21,  1912, 


276 


ECONOMICS  OF  RETAILING 


ful.  Evolution  in  Europe  seems  to  be  quite  definitely  in  the 
direction  either  of  privately  owned  chain-store  systems,  or 
consumers'  co-operative  concerns.  In  their  methods  of  doing 
business,  the  co-operative  and  the  private  chain  are  much  the 
same.  An  analysis  of  the  methods  in  the  one  will  serve  as  a 
general  outline  for  the  other.  The  competition  of  these  two 
classes  of  concerns  is  in  some  cases  very  keen,  and  it  is  said 
that  the  co-operatives  in  England,  where  co-operative  dis- 
tribution is  at  its  best,  fear  nothing  so  much  as  the  growth  of 
''the  multiple  shop,"  as  the  private  chain  store  is  called  there. 

Net  Returns  the  Universal  Object.— The  chain-store  unit 
works  for  the  same  end  as  the  individually  owned  retail  store 
— namely,  the  best  possible  net  returns.  To  succeed  in  get- 
ting a  good  net  return  the  chain  store  usually  works  for  a  big 
volume  on  a  relatively  small  stock,  resulting  in  a  rapid  turn- 
over. In  this  respect  some  of  the  chain  stores  are  very  suc- 
cessful. In  the  average  city  grocery  store  the  stock  turns  per- 
haps ten  or  twelve  times  per  year.  In  some  of  the  best  chain 
grocery  stores,  forty  turns  per  year  is  not  unknow^n.  In  the 
average  drug  store  three  or  four  turns  per  year  is  considered 
good,  but  the  most  successful  drug  chain  has  a  turnover  of 
twelve  times  per  year.  In  a  cigar  and  tobacco  store  the  aver- 
age is  from  four  to  ten  turns,  while  in  one  of  the  most  suc- 
cessful stores  in  a  well-known  chain,  the  stock  turns  fifty 
times  per  year.  The  syndicate  five  and  ten  cent  stores  average 
ten  to  twelve  turns  per  year,  while  the  average  for  individ- 
ually owned  stores  is  only  from  eight  to  ten.^ 

Superior  Executive  Management  of  Chains. — Chain-store 
systems,  because  of  their  large  capital  investments,  can  afford 
to  employ  the  most  efiicient  executives  available  even  though 
their  salaries  must  be  high.     Thus  chain  stores  are  likely  to 

'Printers'  Ink,  December  3,   1914,  page  66  ff. 


CHAIN-STORE  SYSTEMS 


277 


have  better  executive  management  and  more  efficient  methods 
planned  for  doing  the  work  of  the  stores  than  the  ordinary 
individually  owned  stores.  Expert  attention  is  given  to  such 
problems  as  hiring  and  training  employees,  writing  advertis- 
ing matter,  preparing  window  trims,  store  service,  and 
eliminating  leaks  and  w^astes. 

Most  chain  stores,  though  not  all,  are  noted  as  price-cut- 
ters in  well-known,  standard  kinds  of  merchandise,  such  as 
nationally  advertised  goods,  or  staple  merchandise  of  unvary- 
ing quality.  Most  of  them  make  cheaper  prices  the  adver- 
tised argument  for  trade  in  competition  with  the  individually 
owned  stores.  An  occasional  one,  such  as  the  Owl  Drug 
Company,  emphasizes  service  to  the  customer  rather  than  low 
prices.  Many  chain  stores  supplement  their  cut-price  argu- 
ments and  other  advertising  features  by  use  of  trading  stamps, 
premium  plans,  and  other  schemes  to  attract  and  hold  trade. 

Competitive  Advantages.— In  the  competition  of  chain 
stores  with  individually  owned  stores  there  seem  to  be  cer- 
tain advantages  in  favor  of  the  former.  First,  the  chain-store 
system  as  a  rule  represents  greater  buying  power,  and  its 
buyers  are  enabled  to  take  advantage  of  prices  that  are  us- 
ually given  only  to  jobbers.  Savings  thus  made  are,  however, 
counterbalanced  to  a  certain  extent  by  necessary  expenses  in 
redistributing  the  goods  to  the  individual  stores  of  the  sys- 
tem, providing  storage  and  insurance  for  warehoused  goods, 
paying  interest  on  the  money  invested  in  them,  and  defraying 
extra  cost  of  handling.  As  much  as  possible  of  this  expense 
is  avoided  by  having  goods  shipped  from  the  factories  to  the 
stores  direct,  but  this  method  cannot  always  be  carried  out 
advantageously.  Second,  certain  superior  economies  in  ac- 
counting, in  the  delivery  of  goods,  in  advertising,  and  in  the 
granting  of  credit  and  making  collections  seem  to  be  more 
Vracticable   in   chain-store   management   than   in   individually 


278 


ECONOMICS  OF  RETAILING 


CHAIN-STORE  SYSTEMS 


279 


s 


owned  stores.  Third,  the  chain-store  system  with  many  units 
scattered  widely  can  to  a  certain  extent  eliminate  losses  due  to 
unsalable  goods  accumulating  in  any  particular  place  by  hav- 
ing the  slow-selling  goods  moved  to  other  stores  where  they 
may  sell  better.  For  example,  a  chain-store  system  dealing  in 
men's  furnishings  may  find  that  a  certain  line  of  neckwear 
does  not  appeal  to  customers  in  one  community  at  all,  whereas, 
in  another  town  that  same  line  may  prove  quite  popular.  By 
transferring  the  goods  from  the  former  to  the  latter  place, 
losses  by  mark-downs  are  prevented.  The  individually  owned 
store  has  no  such  opportunity  to  transfer  its  goods.  What 
is  bought  for  the  store  must  be  sold  from  it,  and  if  a  mistake 
is  made  in  buying,  the  only  remedy  is  to  sell  at  a  sacrifice. 

Cut  Prices  Possible. — In  competition  with  individually 
owned  retail  stores,  if  it  comes  to  a  desperate  conflict,  the 
chain  store  has  a  decided  advantage.  The  chain  store  being 
a  member  of  a  group  can  concentrate  its  competition  at  any 
point,  undersell  its  individually  owned  retail  store  rival,  sell 
below  cost  indefinitely  if  it  so  desires,  and  make  up  its  deficits 
caused  by  such  cut-throat  methods  at  that  point,  by  profits 
made  in  other  stores  in  other  places.  Theoretically  it  can  con- 
tinue this  process  until  it  has  driven  its  competitors  out  of 
business  or  cowed  them  into  submission. 

Private  Brands. — The  chain-store  system  has  another  ad- 
vantage in  competition  with  the  individually  owned  stores  in 
that  it  can  handle  private  brands  of  its  own,  advertise  them, 
and  build  up  a  market  for  them.  In  most  cases,  the  small 
one-store  retailer  is  not  in  a  position  to  develop  a  business  in 
private  brands.  But  the  standard  brands  handled  by  the  in- 
dependent retailer,  may  be  selected  and  used  by  chain  stores 
as  loss  leaders  to  attract  trade,  and  the  independents  have  no 
similar  method  of  retaliation.    The  chain-store  system  usually 


has  access  to  supplies  of  the  same  kinds  of  goods  as  the  reg- 
ular retailers,  but  the  regular  retailers  do  not  have  like  oppor- 
tunity to  exploit  the  chain-store  products.  Therefore,  the 
chain  store  has  unusual  opportunity  to  use  the  goods  handled 
by  the  regular  retailers  as  competing  weapons. 

The  large  chain-store  system  with  jobber  or  factory  con- 
nections is  assured  of  a  supply  of  goods  under  all  circum- 
stances. The  ordinary  retailer  buying  in  the  open  market 
is  not  always  certain  to  find  further  supplies  when  he  wants 
them.  In  times  of  severe  competition,  sources  of  supply  as 
well  as  the  outlets  to  the  consumers  are  important  points  of 
attack.  In  respect  to  supplies  jobbers'  and  manufacturers' 
chains  are  obviously  much  more  secure  than  the  ordinary 
one-store  concern. 

Chain-Store  Disadvantages.— On  the  other  hand,  chain 
stores  suffer  certain  disadvantages  in  comparison  with  indi- 
vidually owned  stores.  The  average  cost  of  doing  business 
in  chain  stores  is  apparently  lower  than  in  average  individ- 
ually owned  stores.^  There  is  no  question  but  that  the  average 
chain  store  is  more  efficiently  and  economically  conducted  than 
a  large  number  of  individually  owned  stores,  but  this  is  far 
from  saying  that  chain-store  efficiency  and  economy  compares 
favorably  with  the  best  conducted  individually  owned  retail 
stores.  It  seems  entirely  probable  that  the  best  conducted 
chain  stores  must  fall  behind  the  best  conducted  individually 
owned  stores  in  this  respect. 

Local  Managers  Lack  Interest.— The  chain-store  system 
can  probably  never  secure  the  same  degree  of  interest  from 
its  local  store  managers,  especially  when  they  work  on  a  sal- 
ary basis,  that  the  single  store  receives  from  its  owner.  It 
is  much  more  difficult  to  maintain  the  close  personal  touch 

^Printers'  Ink,  December  17,  1914.  Page  20  ff. 


28o 


ECONOMICS  OF  RETAILING 


with  employees  that  is  so  necessary  to  successful  store  prac- 
tice in  a  chain  than  in  a  store  where  employees  work  under 
the  direct  supervision  of  the  owner.  The  systematic  methods 
of  doing  the  work  of  the  chain  store,  so  thoroughly  worked 
out  by  the  executives,  may  easily  pass  over  the  dead-line  of 
red  tape  and  become  a  burden  rather  than  a  productive  helj). 
The  difficulty  of  finding  efficient  store  managers  who  will 
work  for  chain  systems  is  admitted  by  every  chain-store  con- 
cern. Though  the  routine  work  may  be,  and  usually  is  done 
by  low-priced  help,  the  cost  for  efficient  managers,  super- 
visors, and  executives  is  high,  and  as  competition  grows 
keener,  the  cost  for  both  classes  of  help  must  rise  accordingly. 

Careful  Organization  Necessary.— The  organization  of  a 
chain  store  must  be  fitted  to  its  purpose.  Great  attention 
must  be  given  to  details,  some  of  which  can  be  cared  for  from 
the  central  headquarters,  while  others  must  be  arranged 
locally.  The  organization  must  provide  for  the  strictest  au- 
thority and  for  the  most  careful  distribution  of  duty  while 
making  full  allowance  for  all  local  demands.  Thus  the  chain- 
store  system  must  be  something  more  than  a  machine  in  order 
to  make  good.  It  must  be  a  machine  with  an  intelligent  mind 
active  in  every  part.  Initiative  is  in  demand  at  every  point. 
In  all  of  these  respects  the  individually  owned  store  possesses 
natural  advantages  over  the  chain  which,  if  utilized,  help  it  to 
hold  its  own  in  competition  with  the  chain. 

Special  Departments. — In  addition  to  the  regular  organ- 
ization found  within  each  store  of  a  chain — an  organization 
very  similar  to  that  of  any  good  retail  store — and  in  addition 
to  the  corporate  organization  with  its  financial,  executive,  and 
legislative  departments,  most  chain-store  systems  make  special 
provision  for  the  following  activities — in  some  cases  by  the 
establishment  of  special  departments: 


CHAIN-STORE  SYSTEMS 


281 


1.  Selecting  and  acquiring  good  store  locations,  making 

purchases,  arranging  rentals,  disposing  of  unused 
property,  attending  to  repairs,  renewals,  insurance, 
etc. 

2.  Equipping  the  stores  with  furniture  and  fixtures. 

3.  Supplying  the  stores  with  merchandise. 

4.  Advertising  the  stores  and  their  merchandise. 

5.  Planning  window  decorations  and  store  displays. 

6.  En'oloying  and  training  help  for  the  stores,  making 

promotions,  transfers,  and  so  on. 

7.  Devising  sales  plans  and  ideas. 

8.  When  trading  stamps  or  premium  plans  are  used,  ar- 

ranging the  details  in  a  proper  manner. 

9.  Keeping  accounts  and  statistics  of  the  system. 
10.  Auditing. 

Subsidiary  Companies. — In  the  case  of  some  chain-store 
concerns,  some  of  the  functions  named  above  are  carried  on 
by  subsidiary  corporations  whose  stock  is  owned  by  the  parent 
company.  For  example,  in  the  United  Cigar  Stores  Com- 
pany, the  purchase  and  rental  of  sites  for  stores,  the  repairs, 
improvements,  and  subletting,  are  all  cared  for  by  a  corpora- 
tion known  as  the  United  Merchants  Realty  and  Improvement 
Company;  while  the  window  displays  for  all  of  the  stores 
and  agencies  are  prepared  by  the  United  Window  Display 
Company.  Agencies  of  the  United  Cigar  Stores  Company 
are  cared  for  by  the  United  Cigar  Stores  Agencies  Company. 
The  company  in  charge  of  the  real  estate  and  leases  has  proved 
a  profitable  part  of  the  concern,  showing  earnings  of  $650,000 
to  $700,000  annually.^  These  profits  accrue  from  favorable 
purchases  and  sales,  and  from  leasing  large  buildings  only 
parts  of  which  are  used  as  cigar  stores,  the  remainder  being 

*From  "Weekly  Market  Letter,"  April  15,  1915,  issued  by  Jones  &  Baker,  Chicago, 
bee  also,  Printers'  Ink,  November  12,  1914,  page  58  flf. 


282 


ECONOMICS  OF  RETAILING 


CHAIN-STORE  SYSTEMS 


283 


sublet  to  other  tenants.  The  premium  department  is  conducted 
by  another  corporation  entirely  separate  from  the  United  Cigar 
Stores  known  as  the  United  Profit  Sharing  Corporation. 

Store  Equipment  Department. — The  store  equipment  de- 
partment in  chain-store  concerns  apportions  the  space  for 
store  use  and  provides  proper  fixtures,  often  the  same  for  all 
stores  in  the  chain.  The  window  display  department  works 
up  the  ideas  and  supplies  the  materials  for  making  attractive 
window  displays. 

The  reporting  system  developed  by  the  accounting  and 
statistics  departments  of  large  chain-store  systems,  such  as 
the  United  Cigar  Stores,  or  the  Regal  Shoe  Company,  is 
wonderfully  well  adapted  to  indicate  the  exact  condition  of 
the  business  in  each  store  almost  at  any  given  moment. 

Daily  Reports. — Daily  reports  showing  total  sales  and  sales 
by  departments  on  lines  handled,  are  required  from  every 
store  in  most  chain  systems.  The  daily  report  usually  in- 
cludes orders  for  new  stock  to  replenish  lines  sold  out. 
Some  concerns  require  that  all  sales  slips  and  price  tags 
be  sent  to  the  central  office  along  with  the  daily  report  sheet. 
Cash  taken  in  by  the  store  is  usually  deposited  daily  in  a  local 
bank  and  the  certificate  of  deposit  is  mailed  at  once  to  the 
treasurer  of  the  company.  From  these  daily  reports  the  ex- 
ecutives of  the  company  may  learn  definitely  what  is  the  status 
of  each  store,  its  daily  sales,  what  lines  are  selling  best,  what 
lines  poorest,  what  each  salesman  is  doing,  what  profits  are 
being  made,  and  what  stock  is  left  on  hand.  The  slightest 
change  in  custom  or  demand  may  be  noted  almost  instantly. 

Weekly  Summaries. — Weekly  summaries  are  sometimes 
required  from  the  local  managers,  and  weekly  statements  from 
the  individual  salespeople  in  the  form  of  claims  for  bonuses 


or  prizes,  and  so  on.  These  reports  serve  as  checks  on  the 
daily  reports.  In  most  chain  stores,  inventories  are  taken 
frequently,  generally  once  each  month.  In  some  cases  these 
inventories  are  taken  at  regular  times,  in  others  only  on  spe- 
cial call  from  headquarters.  The  reports  of  stock  on  hand 
in  the  inventories  serve  as  another  check  on  the  operations  of 
each  store.  The  daily  reports  as  summarized  and  carried  out 
in  the  accounting  department  show  exactly  what  goods  have 
been  ordered  and  what  goods  sold,  and,  therefore,  what  goods 
should  remain.  The  inventory  report  shows  whether  the 
daily  reports  were  made  correctly  or  not,  or  whether  any 
stock  has  been  taken  from  the  store  in  any  way  without 
proper  accounting. 

Checks  and  Safeguards. — Every  possible  precaution  is 
taken  to  prevent  dishonesty  and  to  discover  it  if  any  should 
occur.  The  reports  already  named  serve  this  purpose,  and  in 
addition  there  is  the  work  of  the  traveling  auditors,  the  super- 
vision by  district  managers,  and  the  work  by  special  investiga- 
tors, many  of  whom  work  in  much  the  same  way  as  detectives. 
The  employee  of  a  chain  store  knows  that  if  he  works  hard 
and  successfully,  he  will  be  well  rewarded,  but  that  he  is 
being  watched  constantly  for  crookedness. 

Not  only  must  each  store  and  employee  make  a  report,  but 
a  certain  standard  of  results  is  set  before  each.  Before  estab- 
lishing any  store,  an  estimate  is  made  of  its  probable  business 
based  upon  the  number  and  class  of  passers-by,  their  probable 
consuming  capacity,  their  habits,  and  the  amount  and  kind 
of  competition.  This  estimate  is  set  before  the  store  as  its 
first  year's  standard,  and  the  manager  of  the  store  is  held 
responsible  for  getting  at  least  that  amount  of  business.  This 
is  known  as  the  store's  quota.  After  the  first  year  this  quota 
is  determined  upon  the  basis  of  the  previous  years'  experience 
and  the  possibilities  of  increasing  the  trade.     The  quota  for 


284 


ECONOMICS  OF  RETAILING 


the  store  may  include  not  only  a  figure  to  represent  the  total 
sales  that  must  be  aimed  at,  but  also  the  amount  of  profits 
that  must  be  gained.  This  means  that  the  manager  of  the 
store  must  give  his  attention,  not  only  to  pushing  sales  gen- 
erally, but  must  give  special  attention  to  pushing  the  sales 
of  goods  that  show  the  largest  profits.  The  sales  quota  may 
go  still  further  and  set  standards  for  the  sales  in  various 
lines,  or  in  various  parts  of  the  store.  For  example,  in  the 
Regal  Shoe  Stores  there  is  said  to  be  a  total  sales  quota,  a 
total  profits  quota,  and  quotas  for  each  department  of  goods 
handled.  The  sale  of  shoe  trees  should  average  one  pair 
to  every  four  pair  of  shoes  sold,  and  sales  of  shoe  polisli 
must  average  one  bottle  to  every  three  pairs  of  shoes  sold. 

Not  only  are  quotas  established  for  every  store  but  also 
for  every  salesman.  The  quota  is  the  standard  for  the  sales- 
man's accomplishment.  If  he  cannot  make  sales  correspond- 
ing to  the  quota  set  for  him,  he  must  give  way  to  someone  who 
can. 


Getting  Results. — While  every  attempt  is  made  to  secure 
the  accomplishment  of  what  has  previously  been  determined 
as  possible,  and  employees  are  held  strictly  to  account  for 
this,  usually  several  incentives,  are  adopted  to  get  every  man 
to  do  his  best.  In  the  first  place,  fairly  good  salaries  are  paid. 
On  the  average,  it  seems,  although  the  writer  relies  only  on 
his  own  observation  for  this,  that  the  salaries  for  the  same 
classes  of  labor  average  somewhat  higher  in  chain  stores 
than  in  individual  stores.  The  chain-store  system  is  in  many 
cases  able  to  use  a  lower  grade  of  labor,  more  young  and 
inexperienced  people,  for  example,  than  the  ordinary  stores. 
The  systematic  division  of  labor  in  the  majority  of  chain 
stores  permits  this.  Thus,  while  these  stores  pay  more  for 
this  class  of  labor  than  other  stores,  the  total  pay-roll  for  the 
chain  stores  may  not  be  as  high  as  in  the  other  stores  doing 


CHAIN-STORE  SYSTEMS 


285 


an  equal  amount  of  business.  It  seems  quite  certain  that 
chain  stores  must  pay  good  salaries  to  all  of  their  store  man- 
agers and  other  executive  officers.  Their  incomes  must  com- 
pare favorably  with  what  they  could  earn  as  independent  store 
managers,  or  the  company  could  not  keep  them  in  employ  nor 
hold  their  loyalty. 

Premium  for  Chain  Store  Employees. — Many  chain  stores 
go  further  and  give  their  employees  bonuses  or  premiums  for 
accomplishment  above  the  standard  or  quota.  Some  con- 
cerns never  grant  regular  salary  increases.  All  increases  in 
earnings  must  come  in  the  form  of  bonuses  or  premiums. 
Prize-giving  systems  are  common.  In  attempting  to  get 
everybody  interested  in  doing  more  than  before,  store  is 
set  in  competition  with  store,  man  against  man.  Every  year, 
each  store  must  do  better  than  it  did  the  preceding  year. 
Every  man  is  encouraged  to  make  his  record  for  the  coming 
year  better  than  for  the  year  preceding.  Prizes  and  premiums 
are  offered  for  successes  in  making  higher  records.  In  the 
most  successful  chain  stores  these  bonus  and  prize-giving  sys- 
tems are  so  extended  as  to  give  to  every  employee  some  chance 
to  earn  a  prize. 

To  stimulate  these  contests  and  increase  sales  efficiency, 
weekly  bulletins  or  house  organs  giving  the  status  of  every 
store  and  every  employee  in  the  contests  are  published  and 
sent  to  all  of  the  stores.  Along  wath  this  information,  the 
management  also  conveys  inspiration  and  encouragement  by 
means  of  lively,  interesting  addresses,  bulletins,  and  printed 
articles,  and  practical  instruction  through  educational  letters 
and  sales  manuals.  Every  attempt  is  made  to  encourage 
greater  endeavor. 

Importance  of  Local  Manager.— There  is  a  maxim  among 
some  chain-store  system  managers  that  runs  as  follows :     "As 


286 


ECONOMICS  OF  RETAILING 


CHAIN-STORE  SYSTEMS 


287 


is  the  manager  so  is  the  local  store."  Special  effort  is  made 
to  get  *'live  wires"  for  such  positions,  and  much  is  done  to 
keep  them  "live,"  after  they  have  been  given  positions  at  the 
heads  of  stores.  The  manager  of  a  store  generally  shares 
substantially  in  every  prize  or  bonus  that  comes  to  the  store. 
He  is  often  given  or  required  to  hold  a  partner's  share  in 
the  store,  or  stock  ownership.  In  the  company's  records  the 
store  in  which  he  is  employed  is  named  after  him.  He  is  taken 
into  the  company's  confidence,  and  his  advice  and  suggestions 
are  sought.  All  of  these  things  tend  to  make  the  store  man- 
ager a  very  loyal  employee  of  the  chain-store  system.  It  is 
recognized  that  here  is  the  weakest  element  in  chain-store 
management — a  hired  employee  rather  than  an  owner  at  the 
head  of  a  store. 


That  this  movement  to  consolidate  existing  chains  has  al- 
ready begun  is  evidenced  by  several  significant  events  of 
recent  date.  For  example,  the  F.  W.  Woolworth  Company 
absorbed  the  S.  H.  Knox  five  and  ten  cent  stores.  The 
United  Cigar  Stores  owners  acquired  a  controlling  interest 
in  the  Riker-Hegeman  Co.,  in  the  latter  part  of  1913.  The 
H.  G.  Gill  stores  have  been  combined  with  the  Maurer  & 
Remley  Company  of  St.  Louis,  and  the  latter  with  the  Kroger 
Grocery  and  Baking  Company,  and  press  rumors  indicate 
that  many  other  consolidations  are  being  proposed.  It  seems 
not  at  all  unlikely  that  vast  combinations  will  some  day 
occupy  the  field  of  distribution  of  goods,  or  at  least  certain 
parts  of  it,  in  much  the  same  manner  that  many  large  con- 
cerns now  control  certain  parts  of  production. 


If  1 

3l 


More  Chains  in  Future. — If  one  may  judge  from  the  de- 
velopment of  chain  stores  during  the  past  ten  years,  it  is  quite 
certain  that  the  next  decade  will  see  many  new  chains  come 
into  existence.  The  struggle  of  manufacturers  and  jobbers 
for  markets  is  forcing  them  into  developing  chain-store  sys- 
tems, and  as  long  as  buying  in  large  quantities  for  cash  se- 
cures lower  prices,  competition  among  dealers  will  tend  to 
draw  groups  of  them  together,  either  in  the  form  of  organiza- 
tions under  single  managers,  or  in  the  form  of  co-operative 
buying  concerns,  in  order  to  command  the  advantage  of 
quantity  prices.  As  the  number  of  such  combinations  in- 
creases, the  special  advantages  will  proportionately  diminish, 
or,  to  put  it  in  another  way,  as  the  number  of  combinations 
seeking  special  prices  on  the  goods  they  buy  increases  the 
difficulty  in  getting  these  prices  will  also  increase,  hence,  it 
will  become  necessary  to  increase  the  size  of  the  aggregations 
either  by  expansion  over  more  territory,  or  by  consolidation 
of  existing  chains  in  order  to  get  better  prices  than  other 
concerns. 


Bibliography 

A  series  of  fourteen  articles  on  chain  stores  appeared  in  Printers' 
Ink  beginning  in  the  September  10,  1914,  issue,  and  ending  Decem- 
ber 24,  1914,  written  by  Charles  W.  Kurd  and  M.  Zimmerman,  mem- 
bers of  the  Printers'  Ink  staff.  This  series  of  articles  supplies  the 
best  published  dissertation  -on  chain-store  systems  extant. 

An  Account  of  the  Maypole  Dairy  Company  of  England  in  "A  Better 
Day's  Profits."     Published  by  Burroughs  Adding  Machine  Co 
Detroit.  '* 

Froni  One  Store  to  Six  Hundred,  the  Story  of  the  Woolworth  Stores 
Hardware  Dealers'  Magazine,  September,  19 12,  and  December 
1912.  ' 

Getting  Maximum  Sales  Out  of  Chain  Store  System.  Printers'  Ink 
August  I,   1912.  ' 

Hanan  Chain  Stores.     Printers'  Ink,  March  21,  1912. 

History  and  Secrets  of  the  Chain  Store  Grocery  Business.  Grocers' 
Magazine,   191 1. 

Money  Sticking  Out,  Story  of  B.  H.  Kroger.  McClure's,  January, 
1914. 

Several  Articles  on  Chain  Stores  by  R.  A.  Bruce.  Printers'  Ink, 
_  July  10,  17,  31,  and  August  7,  1913. 

United  Cigar  Stores.  Printers'  Ink,  several  articles  during  Novem- 
ber and  December,   191 1. 

Woolworth's   Tower   of    Nickels    and    Dimes.    Hearst's   Magazine 
October,    1912. 


CHAPTER  XVII 


THE  MAIL-ORDER  HOUSE 


Mail-Order  Business  a  Recent  Development. — The  de- 
velopment of  the  mail-order  business  is  one  of  the  most  re- 
markable commercial  events  of  the  last  fifty  years.  While 
goods  have  been  ordered  by  mail  ever  since  mails  were  first 
started,  the  retail  establishment  depending  for  business  en- 
tirely upon  mail  orders,  or  the  department  of  a  retail  store 
set  up  to  handle  nothing  but  business  by  mail,  is  a  very  modern 
thing. 

The  Establishment  of  the  First  Mail-Order  House. — The 
first  of  the  great  mail-order  concerns  was  established  in 
Chicago  by  A.  Montgomery  Ward  in  1872.  The  first  store 
room  was  a  hay  loft  over  a  stable  on  East  Kinzie  street.  Mr. 
Ward,  who  died  December  7,  191 3,  had  been  a  clerk  in  retail 
stores  in  Chicago  and  had  also  had  some  experience  as  a  trav- 
eling salesman  for  a  Chicago  wholesale  house  before  going 
into  the  mail-order  business.  Soon  after  starting,  he  asso- 
ciated with  himself  his  brother-in-law,  George  R.  Thorne. 
These  two  men  and  their  families  have  continued  down  to  the 
present  time  to  conduct  the  business  known  as  Montgomery 
Ward  and  Co. 

The  original  aim  of  the  business  was  to  serve  as  a  supply 
house  for  the  farmers'  granges,  local  branches  of  a  secret 
society  known  as  the  Patrons  of  Husbandry,  which  spread 
very  rapidly  in  the  latter  6o's  and  early  70's.  The  grange 
movement  had  as  one  of  its  chief  objects,  co-operative  buying 
of  all  classes  of  goods  for  its  members.     While  the  organiza- 

288 


THE  MAIL-ORDER  HOUSE 


>89 


tion  is  still  strong  in  several  parts  of  the  country,  its  co-opera- 
tive buying  did  not  progress  successfully ;  and  as  that  feature 
fell  off,  Montgomery  Ward  and  Co.  moved  into  the  general 
mail-order  field.  The  concern  was  incorporated  in  1882  and 
agam  m  1913.  Its  sales  amounted  in  1913  to  nearly  $40,000,- 
000  and  in  1918  to  $76,000,000. 

Other  concerns  followed  the  methods  of  Montgomery 
Ward,  and  at  the  present  time  there  are  hundreds  of  mail- 
order concerns,  most  of  which,  however,  are  doing  but  a  small 
amount  of  business.  The  business  of  but  one  concern  exceeds 
that  of  Montgomery  Ward  and  Co.,  namely,  that  of  Sears, 
Roebuck  and  Co.  This  concern's  gross  sales  amounted  to 
$95,500,000  in  1913  and  to  $181,665,830  in  1918. 

Other  Important   Mail-Order   Houses.— Sears,   Roebuck 
and  Co.  has  the  most  remarkable  history  of  all  mail-order 
houses.     Mr.   Sears  was  at  one  time  a   station  agent  in  a 
small  town  in  northern  Minnesota.     A  mail-order  watch  con- 
cern once  sent  a  watch  to  be  delivered  C.   O.   D.  to  some 
customer  in  the  town.     The  customer  could  not  be  found,  and 
Mr.  Sears  notified  the  company.     They  replied  by  urging  him 
to  sell  the  watch  to  someone  else.     Mr.  Sears  did  so  at  a  profit 
of  $2.     This  profitable  venture  led  him  to  order  other  watches 
and  to  sell  them  at  a  similar  profit.     Later  he  left  the  em- 
ploy of  the  railway  company  and  started  a  mail-order  watch 
and  jewelry  concern  in   Minneapolis,   which   was  moved  to 
Chicago  and  after  a  few  years  sold  out  at  a  good  figure.     An- 
other mail-order  house  was  started  in  Minneapolis  under  the 
name  of  Sears  and  Roebuck.     The  new  business  grew,  bjt  at 
the  end  of  five  years  it  was  thought  best  to  move  this  estab- 
lishment to  Chicago  also.     This  was  done  and  the  concern 
was  incorporated  under  the  laws  of  Illinois  in  1895.     This 
organization  continued  until  1906.     Then  the  concern  under- 
went an  internal    change.     A    reorganization    was    effected 


290 


ECONOMICS  OF  RETAILING 


June  16,  1906,  under  the  leadership  of  Julius  Rosenwald,  a 
former  employee  and  now  president  of  the  concern,  and  a 
number  of  his  friends.  Mr.  Sears  sold  out  his  interest  and 
retired  from  the  business,  although  his  name  was  retained 
in  the  list  of  the  board  of  directors  to  keep  the  confidence  of 
the  public  in  the  new  management.  The  new  corporation  was 
formed  under  New  York  State  laws.  Its  capitalization  at 
that  time  was  placed  at  $10,000,000  in  the  form  of  preferred 
stock,  and  $30,000,000  common  stock.  Since  1906  addi- 
tions have  been  made  to  the  common  stock  and  some  of  the 
preferred  shares  have  been  retired.' 

Other  prominent  concerns  in  the  mail-order  field  are 
Timothy  Eaton  and  Co.  in  Canada,  with  stores  at 
Winnipeg  and  Toronto,  the  National  Cloak  and  Suit 
Company  in  New  York,  John  M.  Smyth,  Jr.  and  Co., 
Harris  Brothers  Co.,  formerly  the  Chicago  House  Wrecking 
Company,  the  Chicago  Mail  Order  Company,  Bellas,  Hess  k 
Company,  Chas.  Williams'  Stores,  Bedell's,  Standard  Mail 
Order  Company,  and  the  Larkin  Company.  In  addition  to 
these  there  are  a  considerable  number  of  credit  mail-order 
concerns  which  sell  goods  on  the  instalment  plan,  and  finally 
a  large  number  of  regular  retail  stores  which  conduct  impor- 
tant mail-order  departments.  There  are  over  2,500  mail- 
order houses  in  all  in  this  country.  Of  this  number  850  are 
rated  at  over  $100,000. 

It  should  be  stated  in  passing  that  the  mail-order  depart- 
ment in  department  stores  has  not  been  uniformly  successful. 
Several  large  stores  that  formerly  issued  mail-order  catalogue '. 
have  discontinued,  and  there  are  several  well  known  merchan- 
dising men,  such  as  W.  R.  Hotchkin,  J.  F.  Beale,  and  P.  V. 
Bunn,  who  have  expressed  lack  of  faith  in  a  department  store 
mail-order  department. 


»  On    December    31,    19 18.    the    capitalization    of    Sears,    Roebuck    &    Co.,    was    as 
follows:    preferred   stock,   $8,000,000;    common   stock,   $75,000,000. 


THE  MAIL-ORDER  HOUSE 


291 


Volume  of  Mail-Order  Business.— The  amount  of  mail-or- 
der business  in  this  country  direct  with  consumers  has  been 
estimated  to  be  in  excess  of  $500,000,000  per  year.  If  one 
includes  all  mail-order  business,  the  transactions  of  regular  re- 
tail stores  through  the  mails  as  well  as  exclusive  mail-order 
house  business,  the  total  business  transacted  by  mail  must 
exceed  $1,000,000,000  per  year.  Estimating  the  total  con- 
sumption of  goods  purchased  through  retail  stores  to  be  in 
the  neighborhood  of  $25,000,000,000,  or  $250  per  capita 
per  year,  it  appears  that  the  mail-order  business  equals  about 
4  per  cent  of  the  total  retail  business.  But  this  percentage 
hardly  represents  what  is  taking  place  by  way  of  competition 
between  mail-order  concerns  and  the  regular  retail  stores ;  for 
the  mail-order  business  is  largely,  though  not  entirely,  trans- 
acted with  customers  in  country  districts  and  small  towns. 
Some  estimates  place  the  mail-order  business  at  as  high  a 
figure  as  20  per  cent  of  the  total  trade  of  this  part  of  our 
population. 

To  indicate  the  extent  of  the  mail-order  business,  the  fol- 
lowing suggestive  statements  drawn  from  catalogues  of  the 
mail-order  houses  will  prove  helpful.  Sears,  Roebuck  and 
Company  claim  to  have  over  6,000,000  regular  re-orderino- 
customers.  In  19 12  this  concern  is  said  to  have  sold  over 
5,000,000  pairs  of  shoes  at  selling  prices  amounting  to  over 
$7,000,000.  Advertising  cream  separators,  its  spring  catalog 
of  1913  says  ''about  350,000  in  use,"  while  in  the  fall  of  1913, 
the  advertisements  state  that  there  are  ''over  380,000  in  use." 
Of  one  type  of  buggy  handled  the  claim  is  made  "over  49,000 
in  use."  Again  "The  entire  output  of  over  a  hundred  furni- 
ture factories  is  taken."  Montgomery  Ward  and  Company 
claims  to  have  3,000,000  re-ordering  customers  and  other  con- 
cerns claim  as  high  as  a  million.  Allowing  for  duplications, 
there  are  still  probably  at  least  10,000,000  people  who  order 
some  goods  every  year  from  mail-order  concerns. 


292 


ECONOMICS  OF  RETAILING 


Mail-Order  Method  Most  Highly  Developed  in  U.  S.— 

No  other  country  has  developed  the  mail-order  method  of 
distribution  to  consumers  so  extensively  as  the  United  States. 
It  is  not  likely  that  any  other  country  could  possibly  have  had 
a  similar  development,  at  least  in  extent  or  volume  of  business 
and  number  of  customers.  American  life  during  the  last  fifty 
years  has  supplied  a  number  of  conditions  especially  favorable 
for  the  growth  of  this  method  of  distribution. 

Reasons     for     Rapid     Growth.— The     typical     American 
farmer,  for  example,  lives  an  isolated  life.     His  home,  located 
on  his  40  to  160  acre  farm,  is  distant,  not  only  from  town,  but 
also  from  neighbors.     Farmers  in  other  countries  live  in  vil- 
lages and  are  thus  closely  associated  with  each  other,  as  well  as 
with  the  business  men  and  store  or  shop-keepers  of  the  vil- 
lage.    The  American  farmer  has  developed  an  independence 
of  spirit  that  is  at  once  a  strength  and  a  weakness.     Self-re- 
liance and  readiness  to  act  on  his  own  initiative  on  the  one 
hand  is  accompanied  by  a  corresponding  tendency  to  feel  little 
or  no  interest  in  the  upbuilding  of  the  community  or  in  any- 
thing but  his  own    farm   and    family.     Unlike   the   farmer- 
villager  common  in  all  of  the  old  countries,  he  feels  no  in- 
terest in  his  nearest  town,  no  duty  to  support  it  against  all  of 
the  rest  of  the  world,  and  may  even  suspect  his  townsmen  of 
motives  injurious  to  his  rights  of  property.     This  indifference 
and  even  antagonism  between  town  and  country  is  common  in 
America.     Under  these  circumstances  it  is  not  surprising  that 
a  proposal  to  do  business  with  a  distant  store  or  mail-order 
house  meets  with  success,  even  if  the  profit  from  the  transac- 
tion   is  no    greater  than  could  be  had    nearer    home.     The 
farmer  is  as  ready  to  trade  with  one  as  the  other. 

Another  cause  of  the  recent  rapid  progress  of  the  mail- 
order business  is  the  tremendous  increase  in  circulation  of 
popular  periodical  literature  loaded  with  advertising.     Such 


THE  MAIL-ORDER  HOUSE 


293 


h'terature  has  had  several  effects.  The  reading  matter  in  the 
form  of  news,  fiction,  special  columns,  and  even  the  illustra- 
tions, have  pointed  out  the  means  to  a  higher  or  costlier  stand- 
ard of  living.  Both  reading  matter  and  advertising  have 
shown  the  way  to  greater  variety  in  consumption,  and  have 
helped  to  create  new  wants  in  the  minds  of  the  people.  The 
advertising  has  indicated  the  way  in  which  those  wants 
could  be  satisfied,  and  the  method  has  often  been  to  order 
by  mail  from  a  distant  concern.  The  countryman's  freedom 
from  any  feeling  of  obligation  to  his  home-town  merchants, 
already  referred  to,  and  his  self-reliance  and  initiative  make 
it  easy  for  him  to  send  his  money  to  a  distant  town. 

Influence   of   Increased    Earning    Power.— The   increased 
earning  power  and  consequently  increased  average  wealth  of 
large  classes  of  Americans  in  the  country  districts  and  small 
towns  have  promoted  the  tendency  to  emulate  classes  of  society 
thought  to  be  ''higher."     Such  emulation  has  always  meant 
the  expenditure  of  more  money  for  the  things  used  conspicu- 
ously,   such    as    clothing,    automobiles,    phonographs,    furni- 
ture, house  furnishings,  and  so  on.     Fashion  now  finds  expres- 
sion among  classes  of  people  who  have  heretofore  never  felt 
its  appeal.     The  desire  of  the  American  citizen  "to  be  as  good 
as  the  best"  too  often  results  in  nothing  but  consumption  of 
such  goods  as  it  is  believed  ''the  best"  use.     Fashion,  emula- 
tion, and  desire  for  variety,  therefore,  cause  new  classes  com- 
mg  into  economic  independence  to  seek  outlets  for  their  spend- 
ing power.    For  these,  in  their  earlier  stages  at  least,  the  mail- 
order house  is  the  means  to  the  desired  end.     The  goods  thus 
obtained  are  distinguished  by  being  "different"  from  anything 
m  the  home  village,  and  by  having  come  from  that  region 
of  mystic  charm,  the  city.     In  accordance  with  their  adver- 
tised descriptions,  such  goods  are  "the  latest  and  most  ap- 
proved by  the  best  classes." 


■ih 


, 


294 


ECONOMICS  OF  RETAILING 


Mail-Order  House  vs.  Small  Town  Merchant. — The  retail 
merchants  of  the  smaller  towns  have  in  many  cases  been  un- 
able to  meet  successfully  the  growth  of  the  progressing  de- 
mands of  their  customers.  Often  the  customers  of  a  store 
may  have  transferred  a  large  part  of  their  trade  to  mail-order 
concerns  long  before  the  merchant  learns  anything  about 
it.  The  work  of  retailing  in  a  small  community  and  a  small 
store  is  largely  a  work  of  countless  details,  and  it  is  easy 
to  overlook  the  general  tendencies  of  demand  and  to  get  into 
a  habit  or  custom  of  doing  routine  things  in  the  same  old 
way.  Customers,  in  some  cases,  actually  grow  away  from 
the  store  that  stands  still  and  transacts  business  in  the  same 
way  with  the  same  kinds  and  qualities  of  goods,  trying  to 
get  the  same  profit  margins,  year  after  year.  It  is  significant 
that  where  the  merchants  are  most  active  and  progressive, 
the  mail-order  business  is  usually  unimportant. 

Growth  of  Advertising. — Advertising  has  made  great 
strides  as  an  art  useful  in  promoting  sales  during  the  last 
score  of  years,  but  in  no  business  has  it  reached  the  state  of 
perfection  found  in  the  larger  mail-order  houses.  This 
advertising  has  in  many  cases  been  more  powerful  than 
the  personal  salesmanship  and  actual  display  of  goods  in  local 
retail  stores. 

Price  Arguments. — Mail-order  houses  have  used  as  their 
principal  argument,  a  price  lower  than  that  asked  in  re- 
tail stores.  The  mail-order  house  catalogue  of  some  years 
ago  was  a  mass  of  price  comparisons.  An  attempt  was  made 
to  show  for  almost  every  article  that  it  would  cost  so  much 
snore  at  the  regular  stores  than  at  the  mail-order  house. 
Price  comparisons  are  not  now  so  frequently  made  directly. 
The  suggestion  is,  however,  made  in  even  more  effective  ways, 
though  more  indirectly,  that  the  mail-order  method  of  pur- 
chasing is  one  of  great  economies. 


THE  MAIL-ORDER  HOUSE 


295 


Causes   of   Development   of   Mail-Order   Business The 

independence  and  lack  of  community  spirit  of  the  American 
countryman  due  largely  to  his  isolated  manner  of  living, 
the  general  circulation  of  periodical  literature  among 
all  classes  of  people,  the  increased  earning  power  of  many 
classes,  the  rising  standards  of  living,  the  backwardness  of 
many  small-town  merchants,  the  power  of  mail-order  adver- 
tising to  create  demands  for  mail-order  house  goods,  and  the 
cheaper  price  argument,  are,  it  seems  to  the  writer,  the  chief 
causes  of  the  mail-order  business  development. 

Advertising  Man  Important.— As  already  suggested,  the 
mail-order  house  sells  its  goods  through  advertising.  The 
mediums  employed  include  letters,  circulars,  newspaper  or 
magazine  advertising,  price  lists,  and  catalogues.  The  cata- 
logue and  the  advertisement  in  the  popular  periodicals  are  the 
mediums  most  commonly  and  successfully  used.  Every  effort 
is  made  to  make  these  as  effective  as  possible.  The  work  of 
the  advertising  man  in  a  mail-order  house  is  second  in  impor- 
tance to  no  other. 

In  general,  the  advertisement  of  an  article  either  in  a 
paper  or  in  a  catalogue  must  catch  the  reader's  attention  and 
interest  at  the  first  glance,  and  the  description  must  be  such 
as  to  make  the  reader  see,  feel,  and  appreciate  the  qualities, 
as  if  the  goods  were  already  within  reach.     The  reader  is 
made  to  feel  that  there  is  nothing  to  do  but  to  fill  out  the 
order  blank  and  send   the   money  to  the  mail-order  house 
in  order  to  consummate  the  enjoyment  or  satisfaction  antici- 
pated.    No  wonder  the  mail-order  house  catalogues  are  read 
by  thousands  of  families  more  than  any  other  book.     They 
are  interestingly  written  in  language  carefully  calculated  to 
attract  the  attention  and  stimulate  the  desires  of  such  families. 
They  bear  every  mark  of  the  best  popular  literature  in  that 
their  use  of  words  is  picturesque,  the  ideas  are  clearly  ex- 


296 


ECONOMICS  OF  RETAILING 


pressed,  the  terms  used  are  all  within  the  average  person's 
grasp,  and,  above  all,  they  tell  the  intimate  things  that  people 
want  to  know — the  qualities  of  goods,  what  other  people  are 
using,  the  chances  to  economize,  what  is  necessary  in  order 
to  outshine  other  people,  and  so  on.  These  are  material 
things,  and  the  material  things  of  life  influence  all  classes. 
The  mail-order  catalogue  is  to  many  country  or  small  town 
consumers  what  the  department  store  and  the  brilliantly  lighted 
shopping  district  are  to  the  city  dweller. 

Handling  Orders  Efficiently.— In  the  larger  mail-order 
houses  the  handling  of  the  merchandise  and  the  filling  of 
orders  is  reduced  to  great  efficiency.  We  may  take,  as  an 
illustration,  the  system  followed  in  one  of  the  largest  of  these 
concerns. 

Practically  all  of  the  orders  come  to  the  house  through  the 
mails.  The  mails  come  to  the  concern  in  large  truck  loads 
several  times  a  day,  and  an  average  of  100,000  pieces  of 
mail  per  day  is  the  usual  amount.  The  first  step  is  the 
separation  of  the  postal  cards  and  other  matter  from 
the  sealed  letters.  The  next  is  the  opening  of  the  sealed 
letters  by  power-operated,  letter-opening  machines  which  are 
able  to  handle  10,000  to  12,000  letters  per  hour  per  machine. 
The  contents  of  the  letters  are  next  examined  and  another 
classification  is  made.  All  letters  containing  no  orders  for 
goods,  but  seeking  or  giving  information  of  any  kind  are 
turned  over  to  the  correspondence  departments.  Letters  con- 
taining orders  for  goods  on  time,  or  for  C.  O.  D.  shipment 
are  sent  to  the  credit  department,  and  letters  containing  orders 
for  goods  accompanied  by  payment  are  sent  to  the  auditing  de- 
partment. The  method  of  handling  credit  orders  will  be 
described  later. 

The  orders  going  to  the  auditing  department  are  carefully 
checked  as  to  descriptions  and  prices,  and  the  total  of  the 


THE  MAIL-ORDER  HOUSE 


297 


order  is  checked  with  the  amount  of  money  sent.  Record  is 
made  of  the  amount  of  money  received,  an  invoice  number  is 
assigned  to  the  order,  the  money  is  turned  over  for  entry  and 
deposit,  and  the  order  is  sent  on  to  the  entry  department. 
Here  the  order  tickets  are  made  out  that  are  to  go  to  the 
merchandise  departments.  One  order  ticket  is  made  out  for 
each  merchandise  department  represented  in  the  customer's 
order.  A  complete  record  is  made  of  the  order  for  the  mail- 
order house  files  and  indexed  so  as  to  make  it  easy  to  locate 
at  any  time.  Next,  the  order  tickets  are  sent  to  the  routing 
department  where  specialists  on  routing  and  transportation 
fill  in  instructions  as  to  the  methods  of  shipping  and  packing, 
and  attach  the  address  labels  for  use  in  the  packing  depart- 
ment. This  completes  the  office  work  in  connection  with  an 
order. 

The  order  tickets,  properly  filled  out  with  instructions  as 
to  packing,  shipping,  and  so  on  together  with  the  address  labels 
are  next  sent  direct  to  the  proper  merchandise  departments. 
The  manager  of  the  merchandise  department  receives  the 
order  ticket  addressed  to  him,  has  it  filled  by  one  of  his  assis- 
tants, and  then  sends  the  goods  and  the  order  tickets  to  the 
assembling  and  packing  room.  If  the  original  order  called 
for  goods  from,  say,  four  of  the  concern's  merchandise  de- 
partments, each  would  receive  its  order  ticket,  and  the  goods 
would  be  received  from  each  department,  assembled  into  one 
parcel  in  the  packing  department  and  then  checked  to  see  that 
nothing  had  been  omitted.  After  packing,  the  address  labels 
are  affixed  and  the  parcel  is  .shipped  to  its  destination.  Alto- 
gether, an  average  mixed  order  for  goods  passes  through  from 
fifty-five  to  sixty  hands  from  the  time  it  is  received  until  the 
goods  are  shipped. 

An  Innovation.— Recently  an  innovation  has  been  adopted 
in  the  delivery  of  goods  in  cities  of  from  3,000  population  and 


298 


ECONOMICS  OF  RETAILING 


Up.  In  such  places  the  cost  of  drayage  for  freight  from  the 
station  to  the  homes  of  customers  has  often  been  so  much  as 
to  deter  ordering  goods.  Under  the  new  plan  now  followed 
by  the  largest  mail-order  houses,  sometimes  in  co-operation 
with  each  other,  arrangements  are  made  with  some  local  dray- 
man to  receive  all  freight  from  the  mail-order  houses  in  his 
name  as  if  he  were  the  customer  and  thereby  receive  the 
lowest  freight  rates  accorded  for  quantities.  The  drayman 
is  then  required  to  make  deliveries  to  the  homes  of  the  cus- 
tomers and  to  charge  the  latter  a  pro  rata  share  of  the  cheaper 
freight  rate,  plus  a  delivery  charge  based  on  a  rate  fixed  by 
contract  between  the  drayman  and  the  company,  always  some- 
what less  than  the  regular  dray  charge  would  be.  In  this  way 
the  transportation  charges,  both  freight  and  drayage,  are  con- 
siderably reduced,  especially  for  small  parcels  that  would  not 
ordinarily  be  entitled  to  the  lowest  rates. 

Cash  and  Credit. — A  number  of  mail-order  houses  have 
always  done  a  credit  business,  but  some  of  the  largest  have 
from  the  first  done  a  cash  business  exclusively.  Recently 
some  of  these  cash  houses  have  established  credit  departments 
for  certain  classes  of  customers.  It  has  been  found  that  cer- 
tain kinds  of  goods,  such  as  pianos,  cream  separators,  and 
other  expensive  goods,  do  not  sell  readily  on  the  cash  in 
advance  basis.  The  amount  of  cash  required  is  more  than 
many  users  of  such  goods  can  pay  down  at  one  time. 

Where  credit  is  granted,  however,  every  precaution  is 
taken  to  secure  payments  when  due.  The  credit  manager 
of  such  a  concern  is  one  upon  whom  great  responsibility  rests 
for  he  must  find  out  all  about  his  credit  customer's  ability 
to  pay  by  means  that  will  not  antagonize  him.  Seemingly, 
from  the  point  of  view  of  the  customer,  credit  is  obtained  vtry 
easily.  Really  the  whole  financial  history  of  the  customer  is 
pretty  well  known  to  the  credit  manager  before  he  affixes 


THE  MAIL-ORDER  HOUSE 


299 


his  O  K  to  the  order.  This  done,  however,  the  order  passes 
back  into  the  office  channels  already  described,  just  the  same 
as  an  order  accompanied  by  cash.  When  payments  fall  due, 
the  mail-order  credit  department  system  takes  care  that  the 
customer  receives  due  notice,  and  if  for  any  reason  he  does  not 
respond  as  he  should  the  collection. machinery  of  the  concern 
is  set  to  work  to  get  the  amount  due.  As  progressive  parts 
of  this  system,  he  may  get,  at  first,  a  mere  statement  of  the 
amount  due ;  second,  a  letter  calling  his  attention  to  the  amount 
due ;  third,  a  letter  urging  payment  or  an  immediate  reply  giving 
reasons  for  failure;  fourth,  a  threat  to  begin  legal  action  if 
pay  is  not  forthcoming  at  once;  and  fifth,  if  the  company  has 
received  no  satisfactory  response,  the  claim  is  placed  in  the 
hands  of  the  local  attorney  with  instructions  to  secure  the 
money  without  delay  in  any  possible  way.  The  losses  due 
to  bad  debts  in  the  best  managed  mail-order  concerns  are 
usually  a  very  small  percentage  of  the  total  sales.  By  exer- 
cising care  in  the  granting  of  credit,  and  by  pushing  the  debtor 
for  payment  promptly  when  due,  the  collection  difficulties  are 
reduced  to  a  minimum.  One  concern  that  sold  by  mail  about 
4,000  pianos  in  two  years,  had  to  use  legal  means  in  making 
collections  in  only  two  cases. 

The  Purchasing  Department. — Ranking  with  the  work  of 
the  advertising  department  in  importance  to  the  firm,  stands 
the  buying  of  the  merchandise.  In  order  to  do  business  with 
the  public  it  is  necessary  not  only  to  have  able  men  prepare 
the  catalogues  and  other  material  describing  the  goods  but  also 
to  have  buyers  who  are  able  to  get  bargains  worth  talking 

about. 

Every  merchandise  department  has  its  chief  who  is  the 
buyer.  His  qualifications  for  his  work  are  very  important. 
He  must  know  thoroughly  the  classes  of  goods  his  department 
is  to  carry.     He  must  be  familiar  with  their  qualities,  com- 


300 


ECONOMICS  OF  RETAILING 


parative  values,  and  styles,  and  know  where  such  goods  can 
be  obtained,  how  they  are  made,  the  materials  of  their  con- 
struction, costs  of  making,  market  tendencies,  and  so  on.  He 
must  be  shrewd  in  bargaining,  cool  and  quick  in  judgment, 
and  sure  in  his  reasonings.  His  work  commands  a  salary  of 
from  $2,500  up  to  $25,000  and  even  more  per  year. 

Methods  of  Buying.— The  mail-order  house  of  today  that 
succeeds  best  is  the  one  that  has  either  plenty  of  cash,  or 
very  good  credit.     One  of  the  fundamental  conditions  of  suc- 
cess in  the  mail-order  business  is  ready  money  to  buy  with 
and  plenty  of  it.     The  buyer  in  a  large  concern  has  but  few 
restrictions  placed  upon  him  as  to  what,  when,  or  how  much 
he  shall  buy,  or  how  much  he  shall  pay.     He  is  assumed  to 
be  a  specialist  in  his  line  and  his  judgment  is  not  to  be  ques- 
tioned.    The  only  injunction  that  hangs  constantly  over  his 
head  is  "make  good."     Whatever  he  does  he  must  show  a 
good  net  profit  in  his  department  at  the  end  of  the  season. 
If  he  fails  to  do  so,  and  can  give  no  good  reason   for  the 
failure,  he  loses  his  job.     Such  changes  in  the  personnel  of 
mail-order  buyers  are  not  at  all  infrequent,  and  the  executives 
of  large  mail-order  concerns  are  constantly  scouring  the  coun- 
try with  sharp  eyes  to  locate  the  ablest  buyers.     Whenever 
one  is  located  he  is  secured  at  once  if  possible. 

Determining  the  Minimum  Price. — With  these  conditions 
in  mind,  the  buyer  sets  out  to  buy  goods  at  the  lowest  possible 
prices  and  to  sell  them  at  the  highest  possible  figures.  The 
standards  of  the  concern  as  to  quality  of  goods  must  be  main- 
tained as  closely  as  possible.  The  prices  at  which  the  goods 
are  to  be  sold  can  never  be  more  than  those  obtained  by  most 
retail  stores,  especially  in  well-known  standard  goods.  How 
much  below  the  regular  prices  the  mail-order  house  must  mark 
its  goods  is  a  problem.     Such  prices  must  be  low  enough  to 


THE  MAIL-ORDER  HOUSE 


301 


attract  trade  but  not  any  lower  than  is  necessary  to  this  end. 
The  upper  limits  being  fixed  thus  by  general  retail  market 
conditions,  the  greater  part  of  the  buyer's  w^ork  consists  in 
trying  to  buy  his  goods  at  lower  and  lower  prices,  or  at  least 
to  get  them  at  lower  prices  than  anyone  else. 

The  mail-order  house  with  plenty  of  cash  at  its  command 
and  an  outlet  for  large  volumes  of  goods,  is  in  a  position  to 
get  inside  prices — if  any  one  can  get  them.  The  inside  price 
may  take  either  of  two  forms,  an  unusually  large  discount 
for  cash,  or  an  unusually  low  quantity  price.  Sometimes 
when  immediate  cash  is  not  an  object  to  a  supplier,  the  buyer 
may  succeed  in  getting  his  bills  dated  forward  for  a  consider- 
able length  of  time,  thus  getting  the  use  of  the  funds  for  the 
house  for  a  longer  time  before  paying  for  the  supplies. 


Cash  Buying. — The  buyer  of  a  mail-order  house  with 
plenty  of  cash  at  his  disposal  watches  for  bargains  the  coun- 
try over.  A  manufacturer  who  has  overstocked  himself  with 
his  product  and  does  not  see  any  immediate  means  of  liquidat- 
ing, or  a  manufacturer  in  need  of  ready  cash  v/hose  credit  is 
none  too  good  at  the  banks,  or  a  manufacturer  in  a  line  that 
has  only  a  seasonal  demand  followed  by  periods  of  dullness,  or 
a  manufacturer  who  has  had  trouble  in  marketing  his  goods — 
these  classes  of  producers  are  likely  to  be  visited  by  mail-order 
buyers.  Large  orders  and  cash  in  hand  will  be  offered  if  the 
prices  are  made  low ;  and  the  result  is  that  many  such  transac- 
tions are  made  upon  very  favorable  terms.  Rarely  do  sup- 
pliers succeed  in  getting  fancy  profits  when  dealing  with 
such  buyers. 

The  Guarantee. — One  of  the  most  potent  factors  in  modern 
mail-order  merchandising  is  the  guarantee.  One  concern 
prints  in  large  type  on  the  outside  of  its  cover,  "We  guaran- 
tee absolute  satisfaction.     Promptly  return  to  us,  at  our  ex- 


302 


ECONOMICS  OF  RETAILING 


pense,  any  unsatisfactory  purchase.  We  will  then  either  ex- 
change it  for  what  you  want,  or  return  the  full  amount  you 
have  paid,  together  with  transportation  charges."  This  is  an 
unqualified  guarantee.  It  has  no  strings  attached  to  it.  Some 
people  undoubtedly  take  advantage  of  this  guarantee  and  make 
unreasonable  demands,  but  the  amount  that  is  lost  in  this 
way  is  more  than  recovered  by  the  gains  in  trade  with  the 
timid  who  might  not  purchase  at  all,  if  it  were  not  for  this 
clear-cut  statement. 

A  guarantee  of  this  kind  issued  by  a  large  house  has  a 
peculiar  psychological  effect.  It  not  only  promotes  confidence 
in  the  statements  made  in  the  catalogue,  but  it  also  promotes 
confidence  in  the  goods  themselves,  even  after  they  have  come 
to  the  customer.  The  way  this  principle  works  can  best  be 
seen  in  the  case  of  some  concerns  that  attach  guarantee  tags 
to  all  goods  sent  out.  This  tag  attached  to  an  article  when  it 
finds  its  way  into  the  customer's  hands  is  equivalent  to  an 
assertion  made  in  a  positive  way  that  the  article  is  good.  This 
assertion  helps  to  overpower  any  negation  or  criticism  that 
might  otherwise  tend  to  form  in  the  customer's  mind.  The 
guarantee,  therefore,  actually  tends  to  prevent  returns  and 
exchanges  rather  than  to  increase  them. 

Truthful  Advertising.— Truthfulness  of  advertising  is  an- 
other important  factor  in  the  long  run.  Because  of  slight 
misrepresentations  in  the  catalogues  or  other  advertising  mat- 
ter many  concerns  never  receive  a  second  order  from  cus- 
tomers. Readiness  of  the  firm  to  back  up  every  statement 
made  is  the  first  principle  in  successful  merchandising  not  only 
in  the  mail-order  business  but  in  every  other  retail  business  as 
well.  It  seems  that  in  this  regard  the  standards  of  mail- 
order houses  have  risen  considerably  during  the  last  few 
years.  Even  the  ordinary  expressions  of  selling  talk  have 
been  toned  down  considerably.     It  is  probable  that  any  mis- 


THE  MAIL-ORDER  HOUSE 


303 


representations  which  occur  in  the  advertising  matter  of  most 
of  the  large  houses,  at  least,  are  due  to  error  rather  than 
policy.  It  would  be  strange  if  some  errors  did  not  creep  into 
the  descriptions  of  merchandise,  when  these  run  up  into  the 
tens  of  thousands  in  a  single  catalogue. 


The  Correspondence  Department. — It  is  of  interest  to  note 
the  character  of  the  work  required  and  done  in  the  corres- 
pondence departments  of  mail-order  houses.  Here  again  are 
found  high-salaried  people.  In  writing  to  customers  or  others 
great  care  and  judgment  must  be  exercised.  Questions  must 
be  answered  precisely,  clearly,  and  tactfully.  All  classes  of 
people  must  be  corresponded  with.  What  is  put  down  on 
paper  must  be  both  readable  and  interesting  from  the  stand- 
point of  the  person  who  receives  the  letter,  whether  that  per- 
son be  a  day  laborer  in  a  factory,  a  farmer,  a  ranchman,  a 
housewife,  or  a  school  boy.  The  reader  of  the  letter  must  be 
put  at  ease.  Confidence  must  be  restored  in  cases  of  com- 
plaint, or  built  up  in  cases  of  inquiry.  ''Write  letters,  or  or- 
ders to  us,  in  any  way,  on  any  piece  of  paper,  and  in  any 
language.  We  can  read  and  correspond  with  you  in  your  own 
tongue.  Don't  be  afraid  you  will  make  a  mistake.  We  will 
readily  understand  what  you  want."  Such  is  the  statement 
in  one  catalogue.  To  adapt  the  work  of  the  correspondence 
department  to  all  of  such  needs  requires  both  high  grade  in- 
telligence and  art. 

Efficiency  Methods. — In  a  large,  modern  mail-order  house 
one  finds  a  great  variety  of  devices  to  make  the  handling  of 
orders  and  goods  efficient.  Letters  are  opened  by  machine, 
orders  and  communications  are  sent  to  departments  in 
pneumatic  tubes,  parcels  and  loose  goods  are  conveyed  from 
upper  to  lower  floors  in  gravity  conveyors,  and  from  one 
part  of  the  building  to  others  by  endless  belt  conveyors.     Or- 


304 


ECONOMICS  OF  RETAILING 


ders  are  filled  by  people  who  travel  almost  on  the  run  all  day 
long.     Experiments   have   been   made   in    the   use   of    roller 
skates   in   the    order    filling    and    stock-room    departments. 
Packmg  has  been  reduced  almost  to  an  exact  science.     Wher- 
ever a  machine  can  do  the  work,  one  is  used.     Human  labor  is 
classified  and  departmentalized.     New  employees  are  taught 
how  to  do  their  work  most  effectively.     Standards  of  per- 
formance are  set  and  employees  must  come  up  to  these  stand- 
ards.    Responsible  positions  pay  high  salaries,  but  the  system 
is  so  devised  that  the  number  of  such  positions  is  few  com- 
pared to  the  total.     The  majority  of  employees  need  only  to 
be  active,  alert,  and  accurate  in  their  movements.     Every- 
thing is  taken  care  of  by  definite  instruction.     For  this  reason 
a  very  large  number  of  such  routine  positions  are  filled  by 
young  people,   boys  and   girls   below   twenty  years   of   age, 
working  at  low  wages. 

The  Future  of  a  Mail-Order  House  Employee— Looking 
at  the  business  from  the  social  standpoint,  one  might  wonder 
what  becomes  of  all  of  these  young  people  as  they  grow  older 
and  must  have  higher  paying  situations  in  order  to  meet  the 
higher  costs  of  adult  life.     Certainly,  only  a  small  propor- 
tion can  ever  hope  to  occupy  the  better  paying  positions  in 
their  respective  firms.     One  might  also  question  what  effect 
their  experience   in   such   highly   specialized   and   subdivided 
routine  work  has  on  their  chances  for  getting  more  lucrative 
employment  elsewhere.     Whatever  the  answers  to  these  ques- 
tions may  be,  it  must  be  asserted  that  the  mail-order  business 
represents  one  of  the  highest  forms  of  corporate  efficiency. 
Every  item  is  turned  to  account  in  the  production  of  profit. 

Cost  of  Doing  Business.— This  brings  us  to  the  final  point. 
What  are  the  costs  of  doing  a  mail-order  business?  The  fol- 
lowing is  a  schedule  of  the  percentages  of  each  of  the  main 


THE  MAIL-ORDER  HOUSE  305 

expense  items  based  on  sales  for  a  specialty  mail-order  house 
in  1913: 

Percentage 

Expense  Item  of  Sales 

Rent    1.8% 

Salaries    4.6 

Advertising    3.2 

Heat  and  light 0.9 

Delivery    4.3 

Supplies    2.3 

Insurance  and  taxes   0.7 

General  expenses   2.4 

Depreciation  and  shrinkage  0.6 

Bad  debts  1.6 

Total 22.4% 


Two  Items  in  the  list  are  out  of  the  ordinary,  namely,  ad- 
vertising and  delivery.  Advertising  averages  from  6  to  10 
per  cent  of  sales  in  most  concerns,  and  delivery  is  an  item 
that  appears  only  for  concerns  that  prepay  transportation 
charges  to  consumers.  The  illustration  is  taken  from  a  com- 
pany that  does  very  little  general  advertising.  Its  business 
is  obtained  by  correspondence,  using  select  mailing  lists,  and 
delivery  charges  are  prepaid. 

In  testimony  given  by  Wm.  C.  Thome,  Vice  President 
of  Montgomery  Ward  and  Company  before  the  Parcels  Post 
Sub-Committee  of  the  Senate  Committee  on  Post-Of^ces  and 
Post  Roads,  January  3,  19 12,  he  stated  that  "the  cost  of  do- 
ing business  in  a  catalogue  house  runs  from  16  to  25  per  cent 
of  sales."  Among  figures  gathered  by  the  writer  directly 
from  mail-order  houses,  the  range  is  from  16  to 
26  per  cent  of  sales.  One  was  given  as  16  per  cent  of 
sales,  another  as  iSyi  per  cent,  another  at  20  per  cent; 
one  at  22  per  cent;  two  at  24  per  cent;  two  at  25  per  cent,  and 
one  at  26  per  cent.  The  average  appears  to  be  about  22  per 
cent.     Considering  the  volume  of  business  transacted,  20  to 


3o6 


ECONOMICS  OF  RETAILING 


22  per  cent  of  sales  would  probably  be  fairly  representative 
of  the  average  cost  at  which  the  mail-order  business  of  this 
country  is  transacted  by  exclusive  mail-order  houses.  Mail- 
order departments  in  regular  retail  stores  seem  to  run  some- 
what higher  in  most  cases.  These  figures  must  be  consid- 
ered merely  as  indications  or  estimates  at  best.  While  they 
represent  the  costs  found  in  some  of  the  largest  concerns 
in  the  country,  the  number  of  firms  included  is  too  small  to 
enable  one  to  form  an  accurate  idea. 

Advantages  of  Mail-Order  Houses.— In  conclusion,  mail- 
order houses  claim,  and  undoubtedly  do  have,  certain  advan- 
tages in  many  cases  over  the  small  local  stores  that  are  most 
affected  by  the  mail-order  competition. 

First.  The  art  of  advertising  is  carried  very  much  far- 
ther by  the  successful  mail-order  concern  than  by  the  small 
town  store.  In  fact,  even  where  prices  for  the  same  goods 
are  equal,  the  advertising  is  sometimes  of  such  a  character 
as  to  pull  trade  away  from  the  local  dealer  in  spite  of  all  of 
the  advantages  the  latter  has  in  the  way  of  personal  salesman- 
ship and  of  allowing  the  customer  to  examine  the  goods  be- 
fore buying.  The  vivid  descriptions  of  goods  and  the  sug- 
gestions of  enjoyment  or  satisfaction  stirred  up  in  anticipation 
of  ownership,  not  always  literally  truthful  with  all  advertisers, 
are  factors  in  the  modern  mail-order  catalogue  that  must  be 
reckoned  with. 

Second.  The  large  mail-order  house  is  enabled  to  offer 
through  its  catalogue  a  very  wide  variety  of  goods,  a  great 
factor  of  success  in  competing  with  small  town  merchants. 

Third.  Certain  classes  of  people,  in  this  country  at  least. 
are  ready  customers  of  mail-order  houses  whenever  they  are 
in  the  market  for  goods.  People  who  feel  no  interest  in  the 
up-building  of  the  trade  of  a  community,  those  who  have  ac- 
tually, or    through    misunderstanding,    felt    themselves    mis- 


THE  MAIL-ORDER  HOUSE 


307 


treated  by  their  home  merchants  in  any  way,  or  those  who 
desire  the  distinctive  thing,  the  merchandise  from  the  distant 
place  of  different  appearance  or  qualities,  but  who  cannot 
afford  to  go  in  person  to  the  distant  town  to  buy;  and  those 
who  are  trying  to  make  their  funds  go  as  far  as  possible  and 
to  whom  the  cut  prices  often  advertised  mean  a  great  deal — 
these  classes  form,  perhaps,  in  the  main,  the  bulk  of  mail- 
order house  patrons. 

Fourth.  The  large  mail-order  house  through  its  financial 
power  and  ability  to  market  immense  quantities  of  goods 
is  able,  without  doubt,  to  buy  much  of  its  goods  at  inside 
prices,  and  such  prices  are  often  so  low  that  the  mail-order 
house  may  undersell  its  competitors  and  still  make  a  handsome 
profit.  In  other  words,  the  mail-order  house  is  frequently 
favored  by  manufacturers  with  an  unusual   quantity  price. 

Economic  Disadvantages. — The  economic  disadvantages 
of  the  mail-order  method  of  distribution  may  be  summarized  as 
follows:  A  constant  and  high  advertising  expense  is  neces- 
sary to  keep  trade  coming  in;  a  large  number  of  customers 
never  send  in  more  than  one  order;  and  new  fields  of  cus- 
tomers must  be  cultivated  constantly.  The  transportation 
item  from  the  mail-order  houses  to  customers  is  frequently 
overlooked  in  discussions  of  this  kind,  but  constitutes  an  ex- 
pense that  is  disproportionately  large.  When  one  adds  up 
all  expenses  properly  chargeable  and  incident  to  dealing  with 
a  mail-order  concern  it  is  open  to  question  whether  the  mail- 
order method  of  distribution  is  more  economical  than  the  older 
jobber-retailer-to-consumer  method. 

That  this  fact  is  one  that  bothers  the  mail-order  house 
managers  is  made  evident  by  the  attempts  to  reduce  the  trans- 
portation expense  on  the  packages  and  parcels  as  they  are  sent 
to  the  customers  by  establishing  branch  houses  or  redistribut- 
ing points.     Montgomery    Ward    and    Company    has    such 


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ECONOMICS  OF  RETAILING 


branch  warehouses  at  New  York,  Kansas  City,  Portland,  Ore- 
gon, and  Fort  Worth,  Texas.  Sears,  Roebuck  and  Company 
Hkewise  has  three  or  four  branch  warehouses,  while  certain 
classes  of  goods  such  as  stoves  are  distributed  directly  to  con- 
sumers from  a  dozen  or  more  points.  The  National  Cloak 
and  Suit  Company  combines  all  the  shipments  for  a  week 
or  shorter  period  to  some  central  point  in  a  section  and  ships 
them  by  freight  to  an  agent  located  in  this  place.  The  agent 
opens  up  the  freight  boxes  and  reships  the  contents  by  parcels 
post,  the  packages  for  individual  customers  being  already 
wrapped,  stamped,  and  addressed  to  their  proper  destinations. 
By  these  means  some  savings  are  effected  in  mail-order  distri- 
bution. 


CHAPTER  XVIII 


THE  FAILURE  RATE  IN  THE  RETAIL  BUSINESS 


Business  Death  Tables.— One  of  the  best  means  of  ob- 
taining a  clear  idea  of  the  physical  troubles  of  humanity  is  to 
study  the  mortality  rate.  From  the  death  tables  one  may 
find  something  concerning  the  relative  importance  of  the 
causes  of  death,  and  from  the  study  of  these  causes,  scientists 
and  physicians  have  been  able  to  find  remedies  and  thus  re- 
duce mortality.  In  the  same  way  a  study  of  the  failure  statis- 
tics for  retail  stores  will  reveal  not  only  the  direct  causes  of 
failure,  but  may  also  lead  to  the  discovery  of  methods  of  re- 
ducing the  failure  rate. 

Definition  of  Terms. — Failure  in  the  retail  business,  as 
understood  here,  does  not  necessarily,  nor  even  usually,  imply 
bankruptcy  in  the  legal  sense.  It  simply  means  discontinu- 
ance of  a  business  because  of  inability  to  conduct  it  so  as  to 
make  it  yield  at  least  a  fair  wage  to  the  manager  and  a  fair 
rate  of  interest  on  the  capital  invested.  By  a  fair  wage  is 
meant  such  a  wage  as  the  manager  could  command  in  em- 
ployment elsewhere,  and  by  fair  rate  of  interest  is  meant  the 
customary  or  market  rate.  The  commonest  type  of  failure 
in  the  retail  business  is  where  the  manager  of  a  store  finds  that 
he  is  "losing  money,"  that  he  is  meeting  expenses  out  of  capi- 
tal and  not  out  of  earnings,  and  that  the  business  is  going 
'backward  with  no  hope  of  recovery.  Sometimes  it  is  dis- 
covered that  a  business  cannot  be  made  to  pay  and  the  decision 
to  get  out  from  under  it  is  quickly  made.  In  other  cases,  the 
final  move  is  not  made  until  the  dealer's  original  capital  is  al- 

309 


3IO 


ECONOMICS  OF  RETAILING 


most  if  not  entirely  gone.  Occasionally  the  loss  involves  not 
only  the  dealer's  capital  but  also  a  part  of  the  funds  loaned 
him  in  merchandise  or  in  other  forms  by  his  creditors.  In 
any  case,  the  store  is  finally  sold  or  disposed  of,  and  its  man- 
ager sets  out  to  embark  in  something  else. 

Agency  Failure  Statistics.— The  usual  failure  statistics 
issued  by  such  concerns  as  Dun  and  Bradstreet  comprise  only 
failures  in  which  creditors  lose  something.  No  account  is 
taken  of  that  very  large  class  in  which  the  dealers  are  able 
to  satisfy  their  creditors,  but  lose  part  or  all  of  their  own 
substance.^  The  proportion  of  bankruptcies  and  failures  of 
the  classes  enumerated  by  Dun  and  Bradstreet  must  clearly 
be  very  small,  and,  consequently,  such  figures,  if  taken  to 
show  the  actual  failure  rate  in  business,  are  misleading. 

Recently,  an  article  was  published  and  widely  quoted, 
calling  attention  to  the  low  proportion  of  failures  to  the 
total  number  of  people  in  business  as  .shown  by  Dun's  tables. 
Upon  this  as  a  basis  the  estimates  of  a  very  much  higher 
failure  rate  made  by  many  experienced  business  men  are  crit- 
icized. Tliat  the  word  "failure"  is  used  in  an  entirely  dif- 
ferent sense  in  each  case  is  completely  overlooked.^ 

Early  Failure  Statements. — So  far  as  the  writer  has  been 
able  to  learn,  one  of  the  first  public  statements  in  this  coun- 
try concerning  the  failure  rate  among  merchants  was  made 
in  1840  by  General  Henry  A.  S.  Dearborn,  then  collector  of 
the  port  of  Boston,  in  an  address  before  the  members  of  the 
Massachusetts  Legislature.     His  statement  was  as  follows : 

"After  an  extensive  acquaintance  with  business  men,  and 
having  long  been  an  attentive  observer  of  the  course  of  events 
in  the  mercantile  community,  I  am  satisfied  that,  among  one 


*  Bradstreet's    "Failure    Statistics — Their    Meaning    and    Utility,"    1910,    page    5. 
^Printers'  Ink,  March  5,   1914.  page  loi. 


THE  FAILURE  RATE 


311 


hundred  merchants  and  traders,  not  more  than  three  in  this 
city  ever  acquire  independence.  It  was  with  great  distrust 
that  I  came  to  this  conclusion;  but,  after  consulting  with  an 
experienced  merchant,  he  fully  admitted  its  truth."  ^ 

This  statement  was  questioned  and  doubted  by  other  men 
in  public  life  in  Boston  at  that  time,  and  caused  other  investi- 
gations to  be  made.  The  results  of  these,  though  in  most 
cases  not  so  definite,  served  to  corroborate  General  Dearborn's 
testimony,  at  least  to  the  extent  that  very  few  of  those  w^ho 
entered  the  merchandising  business  were  able  to  make  a  suc- 
cess of  it.* 

A  generation  later,  a  study  was  made  among  the  mer- 
chants of  Worcester,  Massachusetts.  It  was  found  that  out 
of  56  firms  doing  business  in  that  city  in  1845,  one-fifth  passed 
out  within  five  years,  two-fifths  within  ten  years,  and  three- 
fifths  within  fifteen  years.  Following  this  statement  an  esti- 
mate was  made  for  the  retail  business  in  general,  to  the  effect 
that,  out  of  all  who  begin  as  merchants,  at  least  25  per  cent 
fail  within  five  years,  50  per  cent  fail  within  ten  years,  and 
66  2/3  per  cent  fail  within  fifteen  years.* 


Other  Estimates. — In  his  testimony  before  the  Industrial 
Commission  in  1900,  John  Wanamaker  stated  that  only  about 
4  per  cent  of  all  who  embark  in  mercantile  business  succeed.  At 
the  same  time  he  quoted  A.  T.  Stewart,  a  former  great  retailer 
and  wholesaler  of  New  York  City,  who  used  to  claim  that 
only  2  per  cent  succeeded.® 

Leroy  Beaulieu,  a  great  French  economist,  estimated  that 
in  France,  out  of  a  hundred  new  businesses,  twenty  fail  soon 
after  starting,  fifty  to  sixty  vegetate,  or  are  able  simply  to 
hold  their  own,  while  from  ten  to  fifteen  are  successful.'' 


*  Hunt's  Merchants'  Magasine,  15:475- 

*  Freedley,  E.  T.,  "Common  Sense  in  Business,"  1879,  PafifC?  l8s-7. 
^Nation,  April    12,    1888. 

*  Industrial  Commission,  Vol.  VII,  page  45a. 
'  "Repartition  des  Richesses,"  Chap.  XI. 


312 


ECONOMICS  OF  RETAILING 


David  A.  Wells,  a  well-known  American  economist  of 
the  latter  half  of  the  nineteenth  century,  estimated  that  at 
least  90  per  cent  of  those  who  go  into  business  fail.^ 

Professor  Commons  of  the  University  of  Wisconsin  in 
his  ''Distribution  of  Wealth,"  page  202,  quotes  from  some 
writer  not  named,  that  "10  per  cent  of  the  men  who  go  into 
business  succeed,  50  per  cent  vegetate,  and  40  per  cent  fail." 
This  statement  is  accepted  as  a  basis  upon  which  to  build  an 
economic  doctrine  concerning  profits. 

The  Conflict  of  Statements. — Plainly  these  estimates  are 
in  conflict  with  such  statistics  as  those  offered  by  Dun  and 
Bradstreet,  unless  the  latter  are  interpreted  correctly.  For 
example,  for  the  year  19 10  Bradstreet' s  showed  that  11,573 
firms  out  of  a  total  of  1,592,509,  or  .'J2  per  cent  failed.  Dun's 
for  the  same  year  showed  12,652  failures  out  of  a  total  of 
1,515,143  firms  of  all  kinds,  or  .80  per  cent.  In  no  year 
since  either  of  these  two  concerns  have  begun  to  collect  sta- 
tistics on  failures  have  the  percentages  even  equalled  i^ 
per  cent  of  the  total  number  of  concerns  in  any  one  year. 

But  for  the  year  19 10,  Bradstreet's  tables  show  that  over 
321,000  names  of  firms  were  taken  off  their  lists,  amounting 
to  more  than  20  per  cent  of  all  the  concerns  in  business  dur- 
ing that  year.  In  addition  to  these,  a  large  number  of  changes 
were  noted  in  firms,  some  of  which,  at  least,  must  have  been 
due  to  weakness  and  failure.  No  explanation  is  attempted 
for  these. 

The  Oshkosh  Study. — To  get  a  little  more  definite  idea  of 
the  actual  proportion  of  failures  in  the  retail  business,  the 
writer  undertook  a  study  of  the  failures  in  his  home  city  of 
Oshkosh,  Wisconsin,  during  the  years  191 1  and  1912.    With 


•"Recent  Economic  Changes,"  page  351. 


THE  FAILURE  RATE 


313 


the  help  of  the  city  directories,  lists  were  compiled  of  all 
persons  who  had  engaged  in  certain  lines  of  the  retail  busi- 
ness from  1890  down  to  19 12,  and  the  changes  in  personnel 
from  year  to  year  were  noted.  By  interviewing  a  number  of 
the  older  merchants  and  other  old  residents  of  the  city,  the 
attempt  was  made  to  find  out  why  each  retailer  who  had  dis- 
continued business  during  the  period  under  study  had 
dropped  out,  so  that  the  actual  number  of  failures  could  be 
learned.    The  following  represents  the  results  of  this  study. 


General  Facts  About  Oshkosh. — In  order  that  the  condi- 
tions of  the  city  may  be  understood  and  that  the  figures  show- 
ing the  mortality  rate  of  its  retail  business  may  be  given  proper 
weight,  the  following  general  facts  are  presented: 

The  population  of  Oshkosh  in  1890  was  22,836;  in  1900 
28,284;  and  in  1910,  33,062.  It  is  located  in  the  heart  of 
a  rich  agricultural  area  of  eastern  Wisconsin,  and  is  the  county 
seat  of  Winnebago  County.  The  population  is  made  up  al- 
most entirely  of  whites  of  North-European  extraction.  Among 
the  adults,  foreign  born  are  slightly  in  excess  of  native  born 
of  foreign  parents;  and  this  class  is  somewhat  in  excess  of 
native  born  of  native  parents.  Most  of  the  foreign  born 
adults  of  voting  age  are  naturalized  citizens  according  to  the 
19 10  census  report.  Among  the  foreign  born,  Germans  pre- 
dominate, and  among  the  native  born  of  native  parents,  New 
England  and  New  York  strains  prevail.  According  to  the 
statement  of  an  old  merchant,  "The  Yankees,  the  Germans, 
and  the  Irish  run  the  town." 

From  80  to  90  per  cent  of  the  land  area  in  the  county 
is  in  farms,  and  the  average  value  of  farm  land  per  acre 
was  not  far  from  $75  in  19 10.  Most  farms  run  from  40  to 
160  acres  in  size,  the  average  size  being  95  acres,  and  the 
average  number  of  acres  under  cultivation,  (y%  acres.  About 
20  per  cent  of  the  farms  are  managed  bv  tenants.     Milk  and 


314  ECONOMICS  OF  RETAILING 

milk  products,  corn,  oats,  barley,  and  potatoes  are  the  most 
important  products. 

The  manufacturing  industries  of  the  City  of  Oshkosh 
employ  over  6,000  people  and  a  capital  of  $10,000,000;  wages 
and  salaries  paid  by  these  same  industries  amount  to  about 
$3,250,000  annually.  The  chief  manufacturing  industry  is 
wood-working.  A  large  number  of  the  people  employed  are 
either  unskilled  or  only  semi-skilled. 

There  were  835  persons  within  the  city  paying  an  in- 
come tax  for  191 1.  Out  of  this  total,  132  retail  dealers 
were  income-tax  payers,  but  94  of  these  had  other  sources 
of  income  than  their  stores.  Only  41  of  the  income-tax  pay- 
ers received  their  incomes  from  the  stores  alone.  Among 
these,  saloon-keepers  ranked  highest  with  a  total  of  8,  gro- 
cers came  next  with  5,  and  druggists  third  with  3. 

The  sales  of  the  stores  in  the  city  in  some  lines,  accord- 
ing to  estimates  made  by  leading  merchants,  amount  to  about 
$2,000,000  annually  in  groceries,  including  butter,  eggs,  fruit, 
and  vegetables;  $1,000,000  annually  in  dry-goods,  notions, 
women's  and  children's  ready-to-wear  goods;  $350,000  in 
men's  and  boys'  clothing;  $250,000  in  shoes;  and  $150,000  in 
hardware;  all  at  retail  prices. 

As  an  illustration  of  the  probable  power  of  national  ad- 
vertising in  helping  to  determine  consumer-demand,  it  was 
ascertained  that  there  passed  through  the  post-office,  approxi- 
mately, the  following  number  of  magazines  each  month  in 
1911 : 

Woman's  World    500 

Ladies'  Home  Journal   400 

Home  Life    400 

Designer    35^ 

Delineator    300 

Ladies'  World   300 

Pictorial    Review    300 

Woman's   Home   Companion    250 

Housekeeper    125 


THE  FAILURE  RATE  315 

Good   Housekeeping    100 

Harper's    Bazaar    50 

Everybody's    175 

Outlook    250 

Collier's    300 

Literary  Digest   150 

System   50 

Oshkosh  a  Typical  City. — In  general  these  conditions  are 
very  similar  to  those  of  other  cities  of  the  Middle  West,  and 
no  unusual  or  peculiar  conditions,  so  far  as  the  retail  trade  is 
concerned,  exist.  The  town  has  had  no  booms  within  the 
period  under  consideration,  nor  any  particular  slumps.  The 
population  and  industries  of  the  city,  as  shown  by  a  study 
of  the  past  censuses,  have  had  slow,  gradual  growths.  In 
such  a  place  as  this,  if  anywhere,  we  should  be  able  to  find 
normal  tendencies  operating  in  the  retail  business. 

The  Table  of  Retail  Dealers. — The  table  on  page  316 
shows  the  number  of  retail  dealers  in  the  city  handling  the 
following  lines  of  goods — groceries,  shoes,  dry-goods,  men's 
clothing,  hardware,  furniture,  and  drugs.  All  other  lines  are 
omitted.  After  the  date  1890  in  the  left-hand  column  of  the 
table,  appears  first  the  number  of  dealers  in  business  in  that 
year.  Following  the  line  to  the  right,  one  may  trace  the  grad- 
ual dropping  out  of  the  original  dealers  by  noting  the  dimin- 
ished numbers  at  each  date.  After  the  year  1893  in  the  left- 
hand  column  of  the  table,  under  the  appropriate  place,  appears 
the  number  of  new  dealers  found  in  the  new  1893  directory 
— dealers  who  were  not  in  the  1890  list.  These  new  firms 
are  followed  through  to  the  end  of  the  period  in  the  same 
way  as  those  found  in  the  1890  list.  The  19 12  column  shows 
the  number  remaining  of  each  group.  In  the  same  manner, 
for  each  year  in  which  a  directory  was  issued,  the  number 
of  new  firms  listed  is  noted  and  then  traced  down  to  19 12. 

The  table  is  to  be  interpreted  as  follows: 


3i6 


ECONOMICS  OF  RETAILING 


Of  the  total  number  of  merchants  in  business  in  Oshkosh 
in  1890,  145  in  all,  only  18  remained  in  1912.  Of  the  43 
new  dealers  who  began  business  between  1890  and  1893, 
only  8  remained  in  1912.  Of  the  61  who  began  between 
1893  and  1895,  only  9  remained  in  1912.  Of  the  52  new 
ones  Hsted  in  1898,  13  remained  in  1912,  and  so  on. 

Changes  in  Retail  Dealers  in  Oshkosh  from 

1890  TO  1912 


1890  1893  1895 1898  1900  1903 1905 1908  1910 1912 


Exist'g  stores,  1890 145  117  91  y^     50  T^y     29  27  18  18 

New  firms,   1893 43  24  18  15  12  11   9  8   8 

1895 61  33  20  19  17  16  13 

1898 52  34  26    20  15  15 

^900 45  31  19  13  10 

1903 35  24  19  16 

1905 z^     19  13 

1908 35  24  20 

^910 41  34 

1912 38 


u 


(C 


tt 


tt 


tt 


tt 


tt 


9 

13 

9 

^3 
10 


145  160  176  176  164  160  152  153  158  172 


Results  of  the  Survey.— It  appears  from  the  table  that 
there  was  a  general  increase  in  the  number  of  retailers  from 
1890  up  to  1898,  and  then  a  decrease  up  to  1908,  followed 
by  another  increase  up  to  19 12.  Clearly  the  number  of  re- 
tailers has  not  increased  during  the  period  as  rapidly  as  the 
population  increased.  While  the  population  increased  from 
28,000  to  33,000  between  1900  and  19 10,  the  number  of  retail 
stores  actually  decreased  from  164  to  158. 

The  city  was  supplied  with  145  retailers  in  1890  and 
with  176  in  1895  and  1898.  These  figures  represent  the 
range.  The  average  is  nearly  162  for  the  period.  To  keep 
the  city  supplied  with  this  number  of  stores  during  the  period 
of  22  years,  526  people  embarked  in  business  and  invested 


I 


THE  FAILURE  RATE 


317 


their  money  and  time.  Out  of  these,  354  dropped  out,  leav- 
ing 172  at  the  end  of  the  period.  One  of  the  remarkable 
things  about  the  showing  is  the  continuous  inflow  and  outflow 
of  people,  keeping  the  total  number  engaged  in  business  at 
any  one  time  so  close  to  the  average. 

To  determine  the  causes  of  dropping  out,  the  writer  was 
able  to  get  information  concerning  201  out  of  the  total  of 
354  who  quit  business  during  the  period.  This  informa- 
tion was  gained  largely  from  wholesale  and  retail  merchants 
who  had  been  in  business  during  the  entire  period  and  had 
watched  the  development  of  the  retail  business  and  noted 
every  change  with  a  competitor's  interest.  Out  of  the  total 
of  201,  the  general  causes  for  dropping  out  of  business  were 
as  follows: 


Causes  for  Discontinuing  Business 

Cause                                              Number  of  Stores 

Death    24 

Retired  because  of  ill  health    j 

Bankruptcies  handled  by  courts   6 

Failures  or  fizzles  124 

Sold  out,  probably  representing  losses* 27 

Sold  out,  representing  gainsf 14 

Retired  with   competencesf    c 

Total    201 


♦According  to  the  belief  of  the  writer's  informants,  some 
loss,  amount  or  extent  not  known,  was  involved  in  each  of  these. 

tSuccess  as  defined  by  the  writer's  informants  was  often 
a  very  moderate  thing.  One  of  the  merchants  was  able  to  buy 
and  pay  for  a  farm  from  the  proceeds  of  his  sale.  Another  of 
the  retired  merchants  has  an  income  of  about  $800  a  year  from 
his  investments.  The  majority  of  the  14  went  into  other 
businesses.  Some  of  the  most  successful  merchants  in  the  city 
are  still  in  business,  and  are  therefore,  not  included  in  the  table. 

Out  of  the  total  of  354  who  dropped  out  during  the  period, 
153  could  not  be  accounted  for.  Whether  they  succeeded  or 
not  could  not  be  learned.  It  seems  that  most  of  them  quietly 
disposed  of  their  businesses  and  slipped  out,  and  the  changes 


3i8 


ECONOMICS  OF  RETAILING 


in  ownership  of  their  stores  were  hardly  noted  by  the  people 
of  the  city.  It  seems  safe  to  venture  that  none  of  them  were 
very  successful  or  they  would  have  attracted  the  attention  of 
competitors.  On  the  other  hand,  if  they  failed,  it  was  not 
probably  failure  that  involved  any  extensive  loss  to  creditors, 
or  the  latter,  particularly  the  Oshkosh  wholesale  houses — in 
the  grocery  line  at  least — would  have  recalled  them  more  defi- 
nitely. 

Summing  up  the  Situation. — In  discussing  the  situation 
with  some  of  the  older  merchants  and  with  managers  of 
wholesale  houses,  it  seemed  to  be  the  general  estimate  that 
those  who  have  entered  the  retail  business  in  the  city  had, 
on  beginning,  sums  ranging  on  the  average  from  $300  up  to 
$1,000  saved  up  from  wages,  or  gained  in  some  other  way, 
frequently  by  inheritance;  and  that  with  this,  and  as  much 
credit  as  wholesale  houses  would  grant,  they  began  business. 
A  few,  as  we  have  noted,  were  able  to  make  a  success  of  it, 
but  the  great  majority  fizzled  out.  The  majority  of  retail 
concerns  in  the  city  have  a  life  of  from  less  than  a  year  up 
to  eight  or  ten  years,  with  the  average  centering  about  six 
years.  More  drop  out  during  the  first  year  than  during  any 
other  year  of  trial. 

The  story  of  the  retailer  who  fizzles  out  seems  to  be  some- 
what as  follows:  He  comes  into  business  with  a  capital  of 
his  own  of  from  $300  to  $1,000,  usually  gained  from  some 
occupation  other  than  retailing.  He  spends  a  few  years  in 
the  business,  struggles  hard  to  make  it  go,  and  then  slips  out 
with  little  or  nothing  of  his  original  capital,  and  nothing  but 
a  bare  living  to  show  for  his  labor  and  often  for  the  labor  of 
members  of  his  family  also. 

There  seems  to  be  a  steady  flow  of  capital,  generally  in 
small  sums  saved  from  other  occupations,  into  the  retail  busi- 
ness.    Here,  in  the  course  of  a  few  years,  it  is  consumed  or 


THE  FAILURE  RATE  310 

lost,  and  those  who  contribute  it  are  forced  to  get  out  and 
try  other  occupations  again  or  work  as  clerks,  giving  the 
results  of  their  experience  to  other  retail  store  employers. 
The  contributions  of  capital  to  other  businesses  from  the  re- 
tail business  seem  to  be  insignificant  compared  with  what  goes 
into  it.  It  thus  appears  that  under  present  conditions,  retail- 
ing is  at  least  partly  parasitic,  though  indirectly  and  involun- 
tarily so. 

Previous  Occupations  of  Oshkosh  Merchants.— Some  light 
may  be  thrown  on  the  sources  of  the  capital  put  into  the  retail 
business  by  a  study  of  what  occupation  each  of  the  present 
owners  of  retail  stores  in  Oshkosh  came  from  preceding  the 
present  work. 

Occupations  of  Oshkosh  Merchants  Before 
Going  into  Present  Business 
Druggists  : 

Drug  clerks   j  j 

Jewelry  : 

Watchermakers    ^ 

General  tinker i 

Tailor 

Factory  hand i 

Shoes. 

Shoe  Clerks    j  j 

Cobblers    ^ 

Grocery  clerk i 

Factory  hand i 

Barber    

Clothing: 

Clothing  store  clerks  g 

Dry-goods  clerks ^ 

Grocery  clerk i 

Saloon-keeper    

Furniture: 

Cabinet  makers    2 

Clerks  in  furniture  store [ ' ^ 

Factory  worker i 

Farmer 


320 


ECONOMICS  OF  RETAILING 


Hardware  : 

Hardware  business   formerly 
Hardware  store  salesmen   . . . 

Tinsmiths    

Traveling  salesman   

Furniture  manufacturer   

Iceman    


Dry- Goods  : 

Merchants  before 
Dry-goods  clerks 

Peddler    

Grocer    

Farmer    

Shoe  merchant    . . 

Carpenter    

Housewife   


2 
2 
2 
I 
I 
I 


3 
3 


lO 


Grocers : 

Grocery  clerks   

Factory  hands    ^^ 

Housewives    (widows)    9 

Farmers    9 

Grocers  in  other  places  ^ 

4 

3 

3 

2 

2 

2 

2 


Butchers    

Bakers    

Milkmen    

Carpenters    

Traveling  salesmen   .  . . 

Saloon-keepers    

Musicians   

Section  man  on  railway 

Teamster    

Motorman    

Blacksmith     

Cigar-maker    

Shoemaker    

Machinist    

Sewing  machine  agent 

Policeman    

Grain  buyer    

Coal  merchant   


The  above  lists  also  show  that  a  very  large  number  of 
those  who  go  into  retailing  have  neither  experience  nor  knowl- 
edge of  the  business.    ^'Anybody  can  keep  store"  is  the  slogan. 


THE  FAILURE  RATE 


321 


It  seems  a  matter  for  small  wonder,  then,  that  so  few  are  able 
to  succeed. 

Relative  Rates  of  Change  in  Retail  Business. — To  deter- 
mine whether  the  rates  of  change  in  the  retail  business  in 
Oshkosh  were  any  different  from  those  found  in  other  cities 
of  the  same  class  in  Wisconsin,  similar  directory  studies  were 
made  for  Janesville  and  La  Crosse  for  ten-year  periods  each. 
The  same  lines  were  considered  in  Janesville  as  in  Oshkosh, 
namely,  grocers,  shoe,  hardware,  furniture,  dry-goods,  men's 
clothing,  and  drug  dealers.  In  the  case  of  La  Crosse,  jewelers 
were  added  to  the  list.  This  addition  is  of  no  material  con- 
sequence in  the  general  results,  however.  The  results  were 
as  follows: 

Changes  in  Retail  Firms  in  Janesville  from 

1890  TO  1900 

Total  Retail  Stores  in  1890  1896  1898  1900 

Total  stores,  1890 63  31  28  23 

New  firms,      1896 48  20  2% 

::   ::    ^^^ %       l 

1900 25 

^^3  79  74  77 

Changes  in  Retail  Firms  in  La  Crosse  from 

1893  TO  1903 

Total  Retail  Stores  in  1893       1895       1897      1900     1901   1903 

Total  stores,  1893 ^^i         124         108        95        82        71 

New  firms,      1895 55  29        2^         19         16 

«        „  ^^97 33        21         17        14 

«  a  '900 34  17  14 

«        „  '901 31         14 

'903 35 

181         179        170      173      166      164 


Z^2  ECONOMICS  OF  RETAILING 

Changes  in  Retail  Firms  in  Beloit  between 

1890  AND  1900 

Total  Retail  Stores  in  1890  1896  1900 

Total     stores,  1890 46  2^  19 

New    firms,      1896 25  ic 

1900 22 

46  52  56 

Changes  in  Retail  Firms  in  Evansville  between 

1890  AND  1900 

Total   Retail   Stores  in  1890  1896         1900 

Total     stores,  1890 ia  y 

New    firms,     1896 jq  a 

''    "     1900 V.:::::::::: t 

14      17      15 

Changes  in  Retail  Firms  in  Edgerton  between 

1890  and  1900 

Total  Retail  Stores  in  1890  1896        1900 

Total     stores,  1890 21  9  7 

New    firms,     1896 7  a 

"    "     1900 :::::;:.. 5 

21      16      16 

Changes  in  Retail  Firms  in  Clinton  between 

1890  and  1900 

Total  Retail  Stores  in  1890  1896        1900 

Total     stores,  1890 15  8  ^ 

New    firms,     1896 7  t 

1900 7 

15  15  15 


THE  FAILURE  RATE  ,^, 

From  the  foregoing  it  appears  that  retailers  drop  out 
at  about  the  same  rates  in  Janesville  and  La  Crosse  as  in 
Oshkosh.  The  proportion  of  failures  is  probably  the  same. 
Similar  results  were  also  found  for  Beloit,  and  for  the  smaller 
towns  of  Edgerton,  Evansville,  and  Clinton,  all  located  in 
southern  Wisconsin,  showing  that  the  tendencies  for  retail 
dealers  to  drop  out  of  business  are  not  only  very  high  in  such 
cities  as  Oshkosh,  but  also  in  the  much  smaller  cities  and  coun- 
try towns. 

Causes  of  Failure.-For  the  causes  of  failure  among  re- 
tailers we  may  refer  to  the  classifications  of  Dun  and  Brad- 
street.  While  these  concerns  count  only  failures  of  a  Hmited 
class,  the  causes  that  operate  to  drive  dealers  over  into  this 
class  of  failures  are  everywhere  operative  and  probably  in 
about  the  same  proportions  as  found  by  Dun  and  Bradstreet. 
These  causes,  stated  generally,  are  as  follows  : 

Bradstreet's  Classification  of  Business  Failures' 
Beginner's  Handicaps  : 

Lack  of  capital   ^n  7 

Incompetence    \ -^  ^ 

Inexperience    V 

Unwise  credits    ^'^ 

66  " 

Personal  Faults  of  Character  :  '^ 

Fraud   j^ 

Neglect  of  business 20 

Personal  extravagance 

•/ 

Factors  Threatening  Success:  ^* 

Competition    ^ 

Failure  of  others t^ 

Speculation  in  other  business g 

Specific    conditions    (disaster,    etc.) i^ c 

. 20.5 

"Adapted. 


3^4  ECONOMICS  OF  RETAILING 

Classification  of  Causes  of  Failures  in  the 

Retail  Business  ^° 

Beginners'  Handicaps: 

Lack   of   capital    

Incompetence   (including  inexperience) oln 

Unwise  credits    ^ 

General  expense  too  high to 

Poor   location 22 

Expansion   (branch  stores)    .'...'.*.' . . .'  .*  .*  * .  .*  * '  2*0 

Personal  Faults  of  Character:  ^" 

Fraud    

Neglect   of  business ! . . .  .*.*..' to 

Personal  extravagance tg 

Intemperance ^' 

Factors  Threatening  Success: 

Loss  by  storm,  flood,  fire,  etc ,  g 

Sickness    ^' 

Failure   of  others    •..'.'...'.'....'.'.'.'.""      26 

Speculation 

Competition    

Closed  by  "sharks" '■'■'■'.'.V.'.'.'.'.'.'.'.'.'.'.'.'..'.'.'.'."       it 

Robbery  of  store    

Death    .'..'.'.'.'.'.'.'.'.'.'.".'.'.'.! '.'.'.'..""  8 

Loss  in  contracts g 

Miscellaneous  causes  ,'„ 

-^-y 

20.1 

Failure  Rate  High.— In  conclusion,  the  failure  rate  among 
retail  dealers  is  very  high,  probably  higher  than  in  any  other 
phase  of  business  of  equal  importance.  But  very  few  of  the 
failures  in  the  retail  business  reach  the  stage  of  bankruptcy 
proceedings.  The  large  majority  of  such  cases  are  averted 
by  the  dealer  settling  up  or  selling  out  before  the  crash.  The 
fact  that  a  large  number  of  small  dealers  own  only  their  stock 
and  rent  their  buildings  makes  it  easy  to  sell  out  and  settle 


THE  FAILURE  RATE  -2  s 

with  wholesalers  or  others  to  whom  money  is  due  whenever 
the  dealer  finds  himself  going  hopelessly  backward  It  is  the 
busmess  of  the  credit  men  of  wholesale  houses  to  watch  over 
all  concerns  exhibiting  weakening  tendencies,  and  to  shut  off 
credit  and  make  prompt  collections  as  soon  as  the  dealer's  own 
capital  begins  to  diminish.  Thus,  while  the  dealer  may  lose 
a  large  part  or  all  of  his  own  investment,  the  creditors  may 
be  able  to  come  out  of  the  settlement  with  little  or  no  loss. 

The  Wholesaler  and  Retail  Failures.-Most  failures  in  the 
retail  business  are  simply  closed  out  in  a  quiet,  informal  way 
and  the  public  never  learns  just  what  the  exact  financial  situa- 
tion was.  A  new  man  with  new  capital  seems  to  be  ready  to  slip 
in  and  try  his  fortune  as  soon  as  the  old  dealer  steps  out 
No  lesson  is  drawn  from  the  accumulated  experiences  of  the 
vast  number  of  failures  that  have  taken  place  in  the  past 
for  the  most  part  the  system  by  which  elimination  takes  place 
IS  such  as  to  preclude  the  outside  public  from  gaining  from  the 
experiences  of  others.     Those  who  do  know  most  about  it- 
the  wholesalers-find  it  contrary  to  their  own  interests  to 
check  people  from  going  into  business,  even  when  the  chances 
of  ultimate  failure  are  very  great.    A  new  store  is  a  new  cus- 
tomer, and  the  wholesaler  considers  that  by  keeping  close 
watch  of  its  development  through  his  credit  department    he 
may  be  able  to  pull  out  whole  before  the  inevitable  end     Be- 
sides, the  final  outcome  is  not  always  failure  in  spite  of  all 
signs  and  indications.     Some  of  these  new  men  do  make  good 
and  It  IS  worth  while  making  them  customers  when  they  are 
just  starting  in  business. 

Failures  among  retailers  are  a  continual  source  of  trouble 
and  expense  to  wholesalers,  but  the  incentive  to  supply  a  new 
man  with  goods  when  he  comes  with  cash  in  hand,  and  a  cer- 
tain line  of  credit  for  a  while  at  least,  is  stronger  than  the  in- 
centive  to  advise  him  to  keep  out  of  the  retail  business     If 


i 


326 


ECONOMICS  OF  RETAILING 


one  wholesaler  does  not  supply  him,  another  will.  So,  while 
wholesalers,  as  a  rule,  are  vitally  interested  in  seeing  their 
customers  succeed,  they  are  not  in  position  to  act  as  judges  on 
who  should,  and  who  should  not,  enter  the  retail  business. 

How  Relief  May  Come.-Relief,  if  it  is  to  come,  must 
come  through  a  system  of  general,  popular  education  through 
press  and  schools  in  the  elements  of  distribution  of  goods,  in 
the  work  that  must  be  done  in  the  vocations  within  this  field, 
in  the  qualifications  that  are  required  of  those  who  take  up 
this  work,  and  in  the  perils  that  attend  it.     Something  could 
be  done  by  means  of  public  regulation,  perhaps,  through  a 
license  system,  to  limit  the  number  of  persons  who  are  to  en- 
gage in  retail  trade,  and  to  give  the  opportunity  to  prescribe  or 
insure  that  all  of  those  who  do  enter  shall  have  some  fitness 
and  necessary  qualifications  for  serving  the  public  properly. 
But  it  is  not  likely  that  such  regulations  of  the  retail  business 
can  be  carried  out  in  this  country  yet.     The  inherent  belief 
in  the  freedom  of  industry  and  of  trade  that  is  the  product  of 
two  hundred  and  fifty  years  of  thinking  among  English-speak- 
ing people,  will  hardly  permit  any  sudden  change  to  a  practice 
involving  such  regulation,  no  matter  how  necessary  such  a 
change  might  be. 


CHAPTER  XIX 

ARE  THERE  TOO  MANY  RETAIL  STORES? 

Too  Many  Retailers ?-A  belief  is  widespread  that  there 
are  too  many  retailers.     Not  only  is  this  view  held  by  many 
popular  writers,  but  also  by  many  economists.     Pizzamiglio 
in  his     Distributive  Co-operative  Societies"   quotes,  among 
others,  John  Stuart  Mill,  to  the  effect  that  it  would  be  post 
sible  to  dispense  with  the  services  of  nine-tenths  of  the  English 
traders,  and  Thorold  Rogers,  to  the  effect  that  England  could 
get  along  very  well  with  one-fifth  of  the  actual  number  of 
retailers.     Leroy-Beaulieu  and  Roscher  were  also  named  as 
holding  similar  views  for  France  and  Germany  respectively 
One  might  question  the  exact  meaning  of  these  state- 
ments     Did  these  critics  of  the  retail  distributing  system  mean 
that  the  ownership  of  the  existing  stores  might  be  consoli- 
dated to  a  very  great  extent,  and  thus  reduce  the  number  of 
retail  store  owners?    Or,  did  they  mean  that  there  were  too 
many  retail  establishments?     Chain-store  systems,  co-opera- 
tive distributive  societies  and,  to  a  certain  extent,  the  estab- 
lishment of  department  stores,  would  be  the  remedy    if  it 
could  be  shown  that  there  were  too  many  independent  store 
owners.    But  if  they  meant,  as  it  may  be  assumed  here   that 
there  were  too  many  establishments,  then  the  character  of 
ownership  would  count  for  little.    The  remedy  would  be  some 
form  of  regulation  to  prevent  the  number  of  stores  from  in- 
creasing beyond  a  certain  point  in  each  community. 

Meaning  of  the  Question.-One  might  also  ask  what  i= 
meant  by  the  question,  "Are  there  too  many  retail  stores?'^ 

2^7 


328 


ECONOMICS  OF  RETAILING 


Does  it  mean  too  many  for  the  good  of  retailers  themselves? 
Does  it  mean  that  there  are  more  than  necessary  to  supply  all 
the  demands  for  services  such  as  retailers  perform?     Does 
it  mean  that  if  there  were  fewer  stores  the  service  performed 
would  cost  the  public  less?     Obviously,  if  a  retailer  makes 
the  assertion  that  there  are  too  many  stores,  he  means  that  if 
there  were  few^r  he  would  get  more  business  and  more  profit. 
An  economist  interested  in  the  conservation  and  proper  em- 
ployment of  all  labor  might  assert  that  if  there  were  fewer 
stores  the  labor  of  retail  distribution  could  be  accomplished 
by  fewer  people  and  consequently  at  lower  social  cost.     The 
consumer  wonders  if  the  duplication  of  plants  in  the  many 
near-by  stores  does  not  result  in  an  additional  burden  of  ex- 
pense w^hich  is  added  to  the  prices  he  must  pay  for  the  goods 
he  buys.     It  does  not  follow  that  the  conclusions  drawn  by 
these  three  classes  of  people  will  agree.     The  purpose  of  this 
chapter  will  be  to  examine  such  evidence  as  is  available  in 
order  to  answer  the  question,  if  possible,  mainly  from  the 
standpoints  of  the  retailers  and  the  consumers. 

United  States  Census  Report.— As  we  have  already  seen, 
our  statistical  knowledge  of  the  retailing  business,  in  this 
country  as  a  whole,  is  very  imperfect.  The  only  statistics  that 
are  available  are  the  United  States  Census  figures  on  occupa- 
tions and  the  lists  compiled  from  the  Dun  and  Bradstreet  mer- 
cantile reference  books.  Both  are  probably  defective,  the 
former  in  classification,  and  the  latter  through  failure  to  list 
all  persons  engaged  in  the  retail  business. 

The  following  table  prepared  from  the  United  States 
Census  report  on  occupations  is  serviceable.  It  indicates 
the  total  number  of  retail  dealers,  and  the  number  of  dealers 
in  selected  lines  for  each  census  year  from  1850  to  19 10. 

Against  its  use  criticism  might  be  made  that,  at  the  start, 
we  are  confusing  the  number  of  merchants  or  retail  dealers 


ARE  THERE  TOO  MANY  RETAIL  STORES  ? 


329 


with  the  number  of  stores,   that  many  of  these  merchants 
may  be  owners  of  more  than  one  store.     This  criticism  is 
valid,  but  it  may  be  pointed  out  that  there  are  no  statistics 
whatever  for  the  country  as  a  whole  showing  the  number 
of  retail  establishments.    In  further  justification  of  the  use  of 
the  table,  it  may  also  be  pointed  out  that,  at  the  present  time, 
by  far  the  largest  number  of  retail  merchants  are  owners  of 
only  one  store.     While  there  have  been  a  large  number  of 
merchants  who  have  conducted  more  than  one  establishment 
during  the  entire  period,  it  is  only  within  the  last  twenty 
years  that  chain  stores  and  department  stores  have  increased 
in  great  number.     If  the  number  of  establishments  controlled 
by  such  institutions  continue  to  grow,  statistics  such  as  these 
will  become  more  and  more  untrustworthy  as  a  guide  to  the 
number  of  stores  actually  in  existence. 


Development  of  Retailing 

As  Shown  by  the  Total  Number  of  Merchants  and  the 
Number  of  Retailers  in  Selected  Lines 


Line 


All  merchants* 
Wholesalers    . 

Grocers    

Druggists   

Shoe  dealers.. 
Clothiers  .... 
Jewelers  .... 
Dry-goods... 
Lumber    


1850 
174,102 


24,479 
6,139 

•  ••••> 

3,780 
5,1 1 1 

•  ••••• 

•  •••••    I 


i860 


267,921 


40,070 

11,031 

685 

3,346 

10,175 


1870 


357,647 


74,410 

17,369 

8,234 

7,595 
6,402 

39,790 

9,440 


1880 
479,439 


101,849 
27,700 

9,993 
10,073 

2,305 
45,831 
11,263 


•Including    wholesalers. 


1890 

691,325 

31,086 

114,849 

46,375 


•  •  •  •  • 


42,527 


1900 

I9I0 

833,212 

1,004,153 

42,326 

64,166 

156,479 

195,432 

57,271 

65,575 

15,239 

19,346 

18,095 

35,273 

29.962 

45,820 

65.283 

16,792 

26,485 

What  the  Table  Tells.-This  table  reveals  a  number  of 
mteresting  things.  If  it  were  entirely  reliable  as  to  classifica- 
tion, some  interesting  conclusions  could  be  drawn  from  it. 
Some  of  the  discrepancies,  however,  are  obvious.  For  ex- 
ample, the  drop  from  6,402  jewelers  in  1870  to  2,305  in  1880, 


330 


ECONOMICS  OF  RETAILING 


and  then  the  rise  to  29,962  in  1910  is  incomprehensible.  Many 
dealers  were  not  subclassified  by  the  census  enumerators  at 
all  in  each  census,  hence  the  discrepancy  may  possibly  be  ex- 
plained by  assuming  that  a  large  number  of  jewelers  were 
enumerated  under  the  head  of  ''other  dealers"  in  1880. 

The  figures  show  steady  increases  in  the  number  of  deal- 
ers in  practically  every  line.  It  is  interesting  to  note  that 
there  were  no  shoe  dealers  reported  in  1850,  but  that  there 
were  685  in  i860,  and  over  8,000  in  1870.  This  period  marks 
the  beginning  and  rise  of  the  manufacture  of  boots  and  shoes 
by  machine  methods.  Before  i860,  practically  all  boots  and 
shoes  were  made  by  hand  by  shoemakers  found  in  every  vil- 
lage and  requiring  no  stores  or  middlemen.  The  number  of 
clothiers  also  increased  rapidly  during  the  same  time,  and  for 
the  same  reasons. 

Number  of  Stores  and  Population. — Some  light  may  be 
thrown  on  the  question  proposed  by  the  title  of  this  chapter 
by  comparing  the  number  of  retailers  at  each  census  date  with 
the  total  population  and  with  the  total  number  of  persons 
gainfully  employed.  By  means  of  such  comparisons  one  may 
learn  whether  the  relative  numbers  of  dealers  to  total  popu- 
lation and  to  the  total  number  of  gainfully  employed  are  in- 
creasing or  not.  After  such  comparisons  have  been  made  and 
the  tendencies  noted,  some  attempt  can  be  made  to  explain 
these  tendencies,  and  to  draw  conclusions  concerning  whether 
there  are  too  many  retail  establishments  or  not. 

Ratio  of  Grocers  to  Total  Population 
1850 — I   grocer  to  960  people,  or   1.04  per  1,000  population 


i860— I 

1870 1 

1880—1 

1890 1 

1900 1 

191 


<( 


"  750    '' 

''  1.30  '' 

"  527     " 

"  1.90  " 

"  490     " 

"  2.04  " 

''  540     " 

'  1.85  " 

"  423     "     ' 

'  2.36  " 

"  470     " 

'  2.13  " 

<( 


u 
t( 
a 
it 
tt 


ARE  THERE  TOO  MANY  RETAIL  STORES? 


331 


The  census  reports  are  somwhat  indefinite  upon  the  point, 
but  it  seems  quite  certain  that  the  number  of  grocers  indi- 
cated did  not  in  any  case  include  all  who  sold  groceries,  such 
as  general-merchandise  storekeepers,  but  only  those  who  kept 
one-line  grocery  stores.     It  is  to  be  noted  that  this  number 
increased  in  proportion  to  population  in  every  decade  except 
1890  to  1900.     In  those  years  it  appears  that  there  were  fewer 
in  proportion  to  population  than  at  any  time  since  the  decade 
between  i860  and  1870.     Why  this  should  be  so  is  not  clear. 
It  seems  likely  that  the  disproportionately  small  number  of 
grocers  indicated  for  that  year  may  be  explained  by  failure 
of  the  census  enumerators  to  classify  all  grocers  under  this 
head.     There  is  no  reason,  so  far  as  is  known,  for  any  drop 
in  the  number  of  grocers  in  proportion  to  population  for  that 
period. 

Another  Comparison.— The  following  table  probably  rep- 
resents the  situation  more  accurately.  In  this  case  the  total 
number  of  merchants  is  compared  with  the  total  population 
and  with  the  total  number  of  persons  gainfully  employed;  and 
the  total  number  of  persons  engaged  in  trade  and  transporta- 

Ratios  of  Merchants  to  Population* 

•  Number   of   Mer-        Number   of   Mer-  ^,ZsZ  TrldT 

^^50 7.51  27.37  109.20 

1^60       8.52  29.03  97.38 

^^70     9-27  27.56  99.50 

igSo  9.55  28.00  107.60 

^890  11.40  29.65  146.29 

^900  10.97  28.66  163.96 

_  1910  10.92  26.30  199.28 

*The  above  table  Is  based  upon  statistics  criven   in  the   iith   Cfncnc  ^f  tu^  tt   -^  j 
T  Kf^'    ^°'^J^'    Occupat.un    sListks.       The^  totals    of    merchants    are    as ^iv^n    in 
Table    15.      The   term   '/merchants'     here   includes   both   wholesale   and   reLifrnfrchants 
No  separate  classification  of  wholesale  dealers  appears   in   the   census   before    1890 


W 


332 


ECONOMICS  OF  RETAILING 


tion  are  compared  with  the  total  number  of  people  gainfully 
employed  at  each  census  period. 

Retailers  Increase  with  Population. — It  will  be  seen  from 
the  foregoing  table  that  the  number  of  merchants  increased 
relatively  to  population  from  1850  up  to  and  including  1890, 
but  that  the  ratio  decreased  for  1900  and  1910.  The  de- 
creases, however,  are  so  small  as  to  be  practically  negligible, 
and  the  conclusion  seems  warranted  that  beginning  about  the 
year  1890  the  number  of  retailers  in  proportion  to  population 
seemed  to  remain  stationary  down  to  19 10.  It  is  noteworthy 
that  the  greatest  relative  increases  in  the  number  of  merchants 
came  in  the  decades  1850  to  i860  and  1880  to  1890.  The 
significance  of  these  increases  will  be  alluded  to  later  on. 

The  proportion  of  merchants  to  all  persons  gainfully  em- 
ployed shows  the  same  general  tendency  to  increase  as  the 
proportion  of  merchants  to  population,  with  the  exception 
of  a  peculiar  rise  from  1850  up  to  i860,  followed  by  a  fall 
between  i860  and  1870.  A  marked  increase  in  number  of 
merchants  in  proportion  to  working  population  from  1880 
to  1890  is  found  here  as  well  as  in  the  ratios  of  merchants 
to  total  population.  But  from  1890  down  to  19 10  the  ratio 
of  merchants  to  working  population  decreased  quite  mate- 
rially. In  other  words,  the  total  number  of  people  going  into 
industries  of  all  kinds  increased  faster  than  the  number  of 
merchants. 

The  figures  in  the  last  column  indicate  the  growing  im- 
portance of  trade  and  transportation  among  the  industries 
since  i860.  The  high  figure  for  1850  probably  shows  the 
high  tide  of  transportation  by  wagon,  river,  and  canal,  and, 
consequently,  the  great  number  of  people  required  to  trans- 
port goods.  By  i860,  for  long  distances,  transportation  by 
wagon  had  been  largely  superseded  by  railroad  transporta- 
tion.    The  tendency  of  the  numbers  employed  in  trade  and 


ARE  THERE  TOO  MANY  RETAIL  STORES?  333 

transportation  to  increase  since  i860  is  coincident  with  the 
development  of  railroad  transportation  on  a  large  scale.  In 
1870,  one  out  of  every  ten  persons  gainfully  employed  in 
this  country  was  engaged  in  trade  or  transportation.  In  1880, 
one  out  of  every  nine,  in  1890,  one  out  of  every  seven,  and  in 
1900,  one  out  of  every  six,  were  so  employed. 

Not  Certain  that  there  are  too  Many  Stores.— Whatever 
local  variations  there  may  have  been,  it  is  clear  from  the  cen- 
sus that  the  number  of  retailers,  and,  presumably,  the  number 
of  retail  stores,  increased  very  rapidly  from   1850  down  to 
1910.     Not  only  was  there  an  increase  in  actual  numbers,  but 
also  relatively  to  population,  excepting  the  apparent  tendency 
for  the  number  of  merchants  in  proportion  to  population  to 
fall  off  during  the  last  two  decades.     The  fact  that  the  num- 
ber of  merchants  has  increased  lends  color  to  the  belief  held 
by  many  that  there  are  too  many  retail  stores.     Considered  in 
an  unqualified  way  this  proposition  has  led  to  the  judgment 
that  the  cost  of  distributing  goods  must  of  necessity  be  rela- 
tively higher  today  than  it  was  forty  or  fifty  years  ago.   Since 
there  are  more  people  engaged  in  the  distributive  business  to- 
day than  there  were  then,  and  since  all  of  these  additional 
people  must  be  supported,  this  expense,  so  the  reasoning  runs, 
must  be  borne  by  the  consumers.     Assuming  that  the  number 
of  retail  stores  was  quite  sufficient  in  proportion  to  population 
m  1850  or  i860,  it  seems  easy  to  jump  to  the  conclusion  that 
since  there  are  relatively  more  stores  now,  there  must  now 
be  too  many.     This  conclusion  should  not  be  drawn,  how- 
ever, without  question.     For  if  it  can  be  shown  that  there  is 
now  much  more  work  to  be  done  by  retailers  and  that  the 
former  proportion  of  retail  stores  could  not  adequately  handle 
the  business  that  must  now  pass  over  retail  counters,  then 
there  may  not  be  too  many  retailers  even  if  there  are' more 
than  there  were  fifty  years  ago.     This  point  needs  study. 


334 


ECONOMICS  OF  RETAILING 


I. 


The  Function  of  the  Retailer. — The  function  of  the  re- 
tailer is  to  distribute  goods.  Instead  of  comparing  the  num- 
ber of  stores  with  the  number  of  people,  it  would  be  better 
to  compare  the  number  of  stores  with  the  amount  of  work 
done,  that  is,  the  amount  of  goods  sold  by  the  stores.  Un- 
fortunately such  a  comparison  cannot  be  made  directly,  for 
there  are  no  statistics  available  which  show  the  amount  of 
goods  sold  through  the  retail  stores  of  the  country  for 
any  year. 

Other  Census  Statistics ;  Manufactured  Goods.— The  near- 
est approach  to  an  equitable  basis  for  such  a  comparison  that 
is  available  is  the  United  States  Census  valuation  of  goods 
manufactured  in  this  country,  and  the  tables  showing  values 
of  exports  and  imports. 

Probably  the  greater  part  of  manufactured  goods  and 
goods  imported  are  sold  to  consumers  through  dealers.  Ob- 
viously there  are  many  exceptions.  For  example,  large  items 
in  the  total  of  manufactured  goods  such  as  foundry  and  ma- 
chine shop  products,  iron  and  steel  products,  railway  equip- 
ment, electrical  machinery,  illuminating  gas,  coke,  etc.,  make 
up  a  considerable  proportion  of  the  total,  but  are  not  handled 
by  retail  stores  at  all,  or  at  least  to  a  very  small  extent.  The 
figures  representing  the  value  of  manufactured  products  as 
given  by  the  United  States  Census  do  not  represent  merely 
the  values  of  finished  products  ready  for  final  consumption. 
The  goods  which  pass  through  several  processes  of  manufac- 
ture have  their  values  counted  in  the  totals  for  each  process. 
But  in  making  comparisons  of  the  number  of  people  in  the 
distributing  business  with  the  total  values  of  manufactured 
goods  and  imports,  the  goods  not  handled  by  retailers  and  the 
items  of  duplication  in  values  found  in  the  total  of  manufac- 
tured goods,  may  perhaps  be  assumed  to  have  a  somewhat  con- 
stant relationship  to  the  total  values  for  the  period  under  con- 


ARE  THERE  TOO  MANY  RETAIL  STORES? 


335 


sideration.  It  is  assumed  here  that  any  considerable  change  in 
the  volume  of  manufactured  goods  and  imports  as  represented 
by  their  values  would  be  likely  to  have  some  appreciable  and 
direct  effect  upon  the  amount  of  work  to  be  performed  by 
dealers. 

The  Statistics  Analyzed.— It  will  occur  to  some  at  once 
that  the  items  of  merchandise  included  in  the  totals  for  man- 
ufactured goods  which  are  not  handled  by  dealers  may  have 
increased  more  rapidly  in  value  than  other  kinds  of  goods. 
A  comparison  of  the  census  statistics  for  19 lo  with  1900  does 
not  seem  to  bear  out  this  objection.     For  example,  the  value 
of  iron  and  steel  products  in  1909  exceeded  those  of  1899  by 
about  65  per  cent,  but  the  percentages  of  increase   for  the 
same  period  were  as  follows  for  the  following  goods,  all  of 
which  are  handled  by  retail  concerns  of  one  kind  or  another: 
slaughtering  and  meat  packing  73.8  per  centi;  flour  mill  prod- 
ucts, 76.2  per  cent;  cotton  goods,  85.3  per  cent;  men's  cloth- 
i"g»  754  per  cent;  boots  and  shoes,  76.8  per  cent;  bread  and 
other  bakery  products,  126.3  per  cent;  and  women's  clothing, 
141. 5  per  cent.  It  is  believed  that  in  spite  of  the  many  items 
under  the  head  of  manufactured  goods  not  handled  by  retail 
dealers,  the  total  values  represent  a  fair  basis  of  comparison 
when  employed  to  show  the  increase  in  the  amount  of  business 
that  must  be  done  by  the  retail  trade.     As  an  offset  to  large 
increases  among  manufactured  goods  not  handled  by  retailers, 
one  should  remember  that  there  has  been  a  very  rapidly  in- 
creasing   amount    of    farm    produce    entering  into  the    sys- 
tem of  distribution  which  does  not  appear  under  the  head 
of  manufactured  goods  at  all.     Among  such  products  are  veg- 
etables, poultry,  eggs,  and  fruit.     It  needs  no  citation  of  sta- 
tistics to  maintain  that  the  volume  of  such  goods  handled  by 
retail  stores  has  greatly  increased  within  the  last  twenty  or 
thirty  years. 


33^ 


ECONOMICS  OF  RETAILING 


A  Valid  Objection. — It  may  be  urged  that  the  values  of 
manufactured  goods  as  expressed  in  1910  are  not  fairly  com- 
parable with  the  figures  for  earlier  decades  because  of  the  in- 
creases in  prices.  While  the  values  have  gone  up,  it  may  be 
urged,  the  volume  has  not  correspondingly  increased.  This  is 
a  valid  objection  so  far  as  it  goes.  If  prices  have  gone  up  fas- 
ter than  the  volume  has  increased,  then  there  is  some  ground 
for  the  belief  that  the  decrease  in  ratio  between  the  number 
of  merchants  and  the  total  of  manufactured  goods  is  more 
apparent  than  real.  It  would  take  considerable  satistical  study 
to  determine  this  point  fully.  It  seems  probable,  however,  that 
the  effect  of  rising  prices  has  been  merely  to  qualify  or  limit 
the  tendency  of  the  volume  of  manufactured  goods  to  increase 
more  rapidly  than  the  number  of  distributors.  It  must  be  left 
for  some  future  statistician  to  demonstrate  the  truth  or  fal- 
sity of  this  position. 

Ratio  of  Manufactured  Goods  to  Number  of  Retailers. — 

The  following  table  gives  the  essential  facts  regarding  the 
relations  of  the  values  of  manufactured  goods  and  imports 
to  the  number  of  retailers,  to  the  number  of  commercial  trav- 
elers, to  the  total  number  of  people  who  are  gainfully  em- 
ployed, and  to  the  total  population. 

A  study  of  this  table  and  the  chart  on  page  338  shows 
an  increase  in  every  item  mentioned,  for  each  census  year 
over  the  census  year  preceding.  But  manufactures  and  im- 
ports increased  more  rapidly  than  either  the  totals  of  persons 
in  trade  and  transportation,  or  of  merchants.  The  increase 
in  the  number  of  traveling  salesmen,  however,  seemed  to  par- 
allel the  increase  in  manufactures  and  imports  very  closely. 

By  a  study  of  the  chart  it  will  be  seen  that  the  abrupt 
expansion  of  manufactures  and  imports  from  1880  to  1890 
is  accompanied  by  a  similar  increase  in  the  total  number  of 
persons  employed  in  trade  and  transportation,   and  also   in 


ARE  THERE  TOO  MANY  RETAIL  STORES?  ^^y 

Comparison  of  the  Number  of  Distributors 

With  the  Total  of  Goods  Manufactured  and  Imported,  with 
Total  Population  and  with  Total  Number  of  Persons 

Gainfully  Employed 


u 


1850. 
i860. 
1870. 

1880. 

1890. 
1900. 
I9I0. 


o 

1^ 


E 

o 


$1,109 
1,886 
3,386 
5,370 
9,372 
13.000 
20,672 


B 
o 


■♦-"   o 

a2 


$174 

231 
418 

446 

745 

697 

1,312 


«  E 

1° 

0° 


$1,193 
2,217 

3,804 

5,816 

10,117 

13,697 
21,984 


E 

12; 


.2 

u  u 

E  "aJ 

E   cS 

O   u 


o 

ex 


E 


174,000 
268,000 
358,000 
479,000 
691,000 
833,000 
1,004,000 


7,000 

28,000 

59,000 

93,000 

164,000 


CO   c    ™   cfl 
t^  C   I-   u, 


582,000 
802,000 
1,244,000 
1,872,000 
3,326,000 
4,767,000 
6,252,000- 


'^  M-i  ^^ 
-J  c  a 

iS-rt  E 


5,330,000 
8,236,000 
12,506,000 
17,392,000 
22,736,000 
29,073,000 
38,167,000 


*->  o  X 


23 
31 
39 
50 

63 
76 
92 


the  number  of  traveling  salesmen.  The  number  of  merchants 
also  mcreases,  but  not  in  such  an  abrupt  fashion  as  the  fore- 
gomg.  From  1890  to  1900,  manufactures  and  imports  did  not 
mcrease  so  radically  as  in  the  preceding  decade.  A  similar  de- 
clme  m  the  rate  of  increase  is  to  be  noted  for  the  number 
of  merchants  and  tlie  total  engaged  in  trade  and  transporta- 
tion. But  the  retardation  is  more  marked  for  merchants  than 
for  the  entire  group  employed  in  trade  and  transportation. 

It  will  be  noted  also  that  the  number  of  retailers  increases 
at  a  somewhat  higher  rate  than  does  the  total  population 
This  may  be  accounted  for  by  the  fact  that  the  rapid  increase 
in  manufactured  products  indicates  an  increased  consumption 
per  person.  Thus  the  rate  of  increase  in  number  of  retaile-s 
IS,  to  an  extent,  justified  in  exceeding  the  rate  of  increase  of 
the  total  population,  because  of  the  increased  demand  per 
person.  ^ 


338 


22 

Zl 

20 

19 

\8 

J7 

16 

15 

14. 

13 

12 

II 

10 

9 

6 

7 

6 

9 

.4 

3 

2 

t 

0 


ECONOMICS  OF  RETAILING 


/ 

III        1           r   t  i        1          1                                                             1  1    .1.           . 

/ 

Numoerc*  iviercnanTs.                                 uniT«.    100,000 
•       •  Commercial  TraNders.                 Unit  •      10,000 

/ 

— — —     •      tmplcryed  in  lracle&  iranspor+ation-Unit-    Soo.ooo 

/ 

1 

/ 

/   , 

/  / 

/  / 

y 

'  / 

/ 

/ 

/ 

/    / 

/ 

I 

f ,/ 

• 

//y 

jf^ 

/  /^; 

7 

/  /  / 

y^^ 

^  /  / 
/  / 

..-.^ 

^ .,-" 

y 

^.^•'•' 

""  / 

/ 

/r,^-' 

/. 

• 

/ 

22 

21 
20 
19 
\& 
\1 
16 
15 
\A 
13 
12 
11 

9 

^ 

7 

6 
5 
4 

3 
2 


O 


o 
0^ 


Comparison  by  Decades  of  the  Number  of   Merchants,   of  Commercial 

Travelers,  and  of  Total  Persons  in  Trade  and  Transportation,  with  the 

Total  Value  of   Manufactures  and  Imports 


ARE  THERE  TOO  MANY  RETAIL  STORES? 


339 


From  the  above  it  is  clear  that,  while  merchants  and 
dealers  as  well  as  the  total  engaged  in  trade  and  transporta- 
tion have  increased  faster  than  population,  these  classes  have 
not  increased  as  rapidly  as  the  volume  and  value  of  goods 
that  they  have  been  called  upon  to  handle.  It  would  appear 
from  the  foregoing  that  each  dealer  handled,  on  the  aver- 
age, more  business  in  1900  or  19 10  than  in  i860  or  1870. 
In  other  words,  while  there  were  more  dealers  in  proportion 
to  population  in  19 10  than  in  1870,  for  example,  the  dealers 
of  1910  were  required  to  handle  proportionately  more  goods. 
Consumers  had  become  relatively  more  dependent  upon  retail 
stores  for  their  supplies. 


Distributors  Must  Increase  with  Products. — Some  addi- 
tional explanation  may  be  necessary  to  make  clear  why  more 
distributors  are  needed  as  the  products  to  be  distributed  in- 
crease. It  must  be  borne  in  mind  that  a  very  large  proportion 
of  the  changes  in  methods  of  manufacture  since  1850  have 
been  due  to  the  introduction  of  labor-saving  machinery  and 
to  large-scale  production.  These  changes  have  resulted  in 
great  economies  such  as  a  reduced  cost  per  unit  of  product, 
but  these  economies  in  most  cases  could  be  realized  only  by 
developing  wide  markets.  The  distribution  of  goods  directly 
to  near-by  consumers,  as  had  been  customary  in  the  stage  when 
hand  production  prevailed,  no  longer  sufficed.  Consequently, 
with  large-scale  production,  have  grown  up  great  systems  of 
transportation,  of  markets,  and  of  middlemen. 

Large-scale  machine  production  drove  independent  pro- 
ducers using  the  older  methods  out  of  business.  Many  of 
these  thereupon  engaged  in  some  specialized  form  of  produc- 
tion as  wage  earners.  In  this  capacity,  they  became  more  and 
more  dependent  upon  retail  stores  for  the  goods  they  and  their 
families  consumed.  As  the  class  of  wage  earners  increased, 
and  as  the  specialization  of  industry  went  on,  the  number 


340 


ECONOMICS  OF  RETAILING 


of  people  going  to  stores  for  the  necessities  of  life  increased. 
The  old-time  self-sufficing  home,  in  which  all  the  food,  cloth- 
ing, and  other  goods  consumed  were  produced  by  the  family 
itself,  passed  away.  Work  at  the  factories  for  wages  took 
the  place  of  work  at  home  and  the  retail  store  became  the 
market  for  the  exchange  of  wages  for  the  necessities  and 
comforts  of  life. 

The  Growth  of  Cities  and  Distribution. — Factory  produc- 
tion has  been  the  chief  cause  of  the  growth  of  modern  cities. 
But  the  greater  the  number  of  people  who  live  together  in 
cities,  the  greater  the  work  of  distribution.  People  who  live 
in  the  country,  and  even  in  small  villages,  are  able  to  produce 
a  great  many  things  for  their  own  use,  such  as  vegetables, 
fruits,  poultry  and  dairy  products,  meats,  and,  in  some  parts 
of  the  country,  even  fuel.  It  is  also  possible  in  rural  communi- 
ties and  in  small  villages  for  the  producers  and  consumers  to 
come  together  frequently  and  make  direct  exchange  without 
the  medium  of  middlemen.  In  cities,  however,  there  is  very 
little  opportunity  for  a  family  to  produce  anything  that  it  can 
consume  directly.  Nor  is  there  very  much  opportunity  for 
buying  goods  directly  from  producers.  Everything  that  is 
to  be  used  must  be  obtained  from  some  dealer.  The  demand 
from  cities  for  products  suitable  for  consumption  is  spread 
over  vast  areas  of  territory,  and,  consequently,  a  need  for  an 
extensive  and  intricate  distributing  system  is  created. 

Relation  between  Standard  of  Living  and  Distribution. — 
The  changes  in  the  standards  of  living  of  the  American  peo- 
ple that  took  place  between  1850  and  1910  have  also  had  an 
important  effect  on  the  distribution  system.  At  the  latter  date 
practically  all  people  consumed  a  much  wider  variety  of  goods 
than  at  any  time  previously.  Goods  were  purchased  in  much 
smaller   quantities,    therefore    requiring   more   handling   and 


ARE  THERE  TOO  MANY  RETAIL  STORES? 


341 


care.  In  general,  customers  of  retail  stores  required  much 
more  personal  attention  than  before.  These  changes  in  the 
customers  have  helped  to  place  a  bigger  burden  on  the  distri- 
butive system. 

Thus,  as  the  area  over  which  the  distribution  of  goods  has 
to  be  effected  is  enlarged,  as  a  greater  number  of  customers 
have  to  be  reached,  as  the  custom  or  necessity  for  purchasing 
goods  at  stores  rather  than  making  them  at  home  has  in- 
creased, and  as  city  life  has  developed,  the  variety  and  total 
volume  of  manufactured  goods  distributed  through  retail 
stores  has  greatly  grown,  and  the  distribution  of  the  goods 
has  become  increasingly  important,  and  has  demanded  the 
services  of  more  and  more  people. 

Production  Costs.— It  has  been  noted  generally  that  the 
costs  of  production  both  in  the  factory  and  on  the  farm  have 
diminished  during  the  period  studied,  namely,  from  1850  to 
1910.  It  has  not  been  noted,  however,  that  the  increased 
production  consequent  to  lower  costs  made  necessary  a  much 
wider  distribution  involving  more  handling,  transporting,  and 
selling.  While  the  average  costs  of  production  per  unit  of 
product  decreased  during  this  period,  the  costs  of  distribution 
per  unit  probably  increased  for  many  though  not  for  all  goods. 
To  make  clear  what  is  believed  to  be  a  fair  representation  of 
what  has  taken  place,  the  diagram  shown  on  page  342  may 
be  used. 

Suppose  the  line  ab  to  represent  the  costs  of  manufac- 
ture of  a  given  unit  of  goods,  and  ax  to  represent  the  costs 
of  distributing  that  unit,  in  1850.  Let  us  assume  that  the 
costs  of  manufacture  have  decreased  in  the  following  60 
years  so  that  in  1910  they  may  be  represented  by  the^'line 
cd.  In  the  meantime,  for  the  causes  already  given,  the  costs 
of  distribution  have  risen  so  that  in  1910  they  equal  cy.  The 
results  are  that  the  costs  of  the  goods  to  the  consumer  equalled 


342 


ECONOMICS  OF  RETAILING 


ARE  THERE  TOO  MANY  RETAIL  STORES? 


ab  plus  ax,  or  bx,  in  1850  and  cd  plus  cy,  or  dy,  in  19 10. 
Thus,  while  the  total  costs  to  the  consumer  have  undoubtedly 
gone  down  during  the  period  under  consideration  they  have 
not  gone  down  in  the  proportion  that  the  costs  to  manufac- 
ture have  decreased,  for  with  decreasing  costs  in  production 
there  have  of  necessity  come  the  increasing  costs  of  distribu- 
tioa 


343 


Diagram  Showing  Tendency  of  Costs  of  Production  to  Decrease,  and  of 

Costs  of  Distribution  to  Increase 

Manufacturing  Costs  and  Distribution  Costs. — It  is  not  to 
be  supposed  that  the  decreasing  costs  of  manufacture  are 
equalled  by  the  increasing  costs  of  distribution.  If  that  were 
true,  then  there  would  be  no  incentive  to  install  lalx)r-saving 
improvements,  or  construct  larger  plants.  It  is  simply  main- 
tained that  the  full  economies  of  modern,  large-scale,  factory 
production  could  not  possibly  be  passed  on  in  entirety  to  the 
consumer.  It  is  even  conceivable  that  in  the  development  of  a 
given  industry  the  point  may  be  reached  where  slight  improve- 
ments leading  to  an  increased  and  cheapened  product  may  be 
entirely  counterbalanced  by  the  additional  expense  involved  in 
marketing  this  additional  product. 


Increases  in  the  number  of  retail  stores  in  proportion  to 
population  are  thus  abundantly  accounted  for  by  the  increased 
service  that  they  have  been  called  upon  to  perform.  Whether 
there  are  now  too  many  retail  stores  or  not,  it  is  certain  that 
there  is  a  necessity  for  more  stores  now  than  there  were  fifty 
years  ago. 

The  Retailer's  Viewpoint. — From  the  standpoint  of  the 
retaihr  there  are  too  many  retail  stores.  There  would  be  too 
many  if  only  half  of  the  present  number  were  in  existence, 
for  the  presence  of  competitors  generally  means  divided  trade 
and  less  profit.  From  Chapter  XVIII,  "The  Failure  Rate  in 
the  Retail  Business,"  it  seems  clear  that  a  somewhat  less  keen 
competition  would  insure  many  more  retailers  a  fair  living 
wage  from  their  occupation  and  thus  result  in  fewer  discon- 
tinuances and  changes  in  the  personnel  of  the  business. 

The  Public's  Viewpoint.— From  the  standpoint  of  the  pub- 
lic it  is  not  so  easy  to  pass  judgment.     It  is  true  that  the  num- 
ber of  retailers  is  great  and  it  is  also  true  that  the  costs  of 
distribution  are  high.     But  it  does  not  appear  that  any  other 
class  than  the  retailers  themselves  would  benefit  largely  from 
cutting  down  their   number.     The    loss   to    retailers    due    to 
competition  is  largely  a  matter  of  gain  to  the  consuming  public 
If  the  number  of  retailers  could  by  legal  mandate  be  reduced 
by  one-half,  the  results  to  the  public  would  be  a  very  general 
reduction  in  the  amount  of  conveniences  and  services,  such  as 
retailers  now  furnish,  and,  very  likely,  an  increase  in  the  costs 
of  distribution.     Each  store  would  be  called  upon  to  perform 
twice  the  service  it  now  gives;  but,  if  one  may  judge  from  the 
experience  of  present  stores  that  have  developed  to  twice  or 
more  times  their  former  size,  doubling  the  business  of  each 
store  will  not  necessarily  result  in  a  reduced  selling  expense. 
Retailing  is  different  from  most  other  businesses  in  this  respect 


344 


ECONOMICS  OF  RETAILING 


ARE  THERE  TOO  MANY  RETAIL  STORES? 


345 


^i 


that  the  small  store  can  usually  be  conducted  at  a  lower  cost 
than  a  larger  store.  Unless  other  advantages,  such  as  in 
buying  or  in  advertising,  may  be  gained  to  offset  the  increas- 
ing expense  of  the  large  establishment,  there  is  nothing  to 
be  gained  by  increasing  the  business  of  a  store  beyond  a  cer- 
tain point  that  keeps  a  small  institution  busy. 

From  the  standpoint  of  certain  classes  of  consumers  with 
relatively  high  standards  of  living,  a  somewhat  larger  average 
retail  business  unit  would  be  highly  desirable.     Tlie  extreme 
subdivision  of  the  retail  stores  now  found  in  most  parts  of  this 
country,  while  not  so  great  as  in  European  countries,  prevents 
each  store  from  offering  a  wide  variety  of  goods.     It  also 
takes  something  more  than  the  average  amount  of  business 
at  average  profits  to  equip  and  conduct  a  modern  meat  or 
grocery  store,  for  example,  in  a  manner  entirely  satisfactory 
to  such  consumers.     Refrigerators,  automatic  scales,  electric 
conveyors  for  cash  and  parcels,  marble-topped  counters,  plat-e 
glass  and  metallic  fixtures,  automobile  delivery  outfits,  sales- 
people dressed  in  well-laundered  white  suits,  absolute  cleanli- 
ness, ornamental  and  artistic  displays  of  goods,  sanitary  ar- 
rangements, and  so  on,  constitute  the  necessities  of  a  well- 
ordered,   up-to-date    food    store    such    as    these    consumers 
would  like  to  patronize.     But  to  support  a  concern  of  this 
kind  requires  both  a  larger  amount  of  business  than  the  or- 
dinary store  gets  and  also  a  higher  rate  of  gross  profit.     As 
the  education  of  the  consumers  goes  on,  and  as  the  standard 
of  living  rises,  the  demand  for  such  stores  as  these  will  grow. 
One  may  expect  to  see  their  number  increase  even  in  competi- 
tion with  the  smaller  stores  with  the  cheaper  equipments,  lower 
expenses  of  doing  business,  and  lower  prices. 

Retail  Stores  Do  Not  Add  Expenses. — In  conclusion  it 
may  be  stated  that,  from  the  standpoint  of  the  entire  public, 
there  is  nothing  to  indicate  that  the  great  number  of  retail 


stores  adds  anything  to  the  burden  of  expense  the  consumer 
must  bear.  The  high  failure-rate  in  the  retail  business  would 
seem  to  indicate  that  retail  distribution  is  supported,  in  part 
at  least,  not  by  the  consumers  who  patronize  the  stores,  but 
by  the  great  numbers  who  enter  the  business  of  retailing  with 
capital  accumulated  in  other  occupations  and  then  lose  it  in 
the  retailing  venture.  .  The  losses  of  dealers  who  fail  are 
primarily  the  losses  of  the  dealers  themselves.  Only  in  the 
most  general  way  of  speaking  could  one  assert  that  the  public 
must  bear  the  burden. 

There  are  opportunities,  however,  of  keeping  down  the 
costs  of  distribution  which  should  not  be  neglected.  The 
same  inventive  genius  that  has  been  applied  to  the  produc- 
tion of  goods  so  as  to  cut  down  the  costs  per  unit  can  no 
doubt  be  applied  in  a  similar  way  to  cut  down  the  costs  of 
distribution  per  unit.  What  is  needed  is  the  application  to 
distribution  of  science  and  research  as  these  methods  are  now 
applied  to  production. 


CHAPTER  XX 

PUBLIC  REGULATION  OF  THE  RETAIL  BUSINESS 

Regulating  Retail  Business.— The  suggestion  that  retail 
stores  should  be  regulated  has  frequently  been  made.  Some- 
thing is  already  being  accomplished  in  this  direction  by  states 
and  municipalities  through  inspections  designed  to  secure  pur- 
ity of  foods,  legal  weights  and  measures,  proper  sanitary  ar- 
rangements, sufficient  protection  from  fire  and  from  elevator 
accidents,  and  observance  of  legal  requirements  as  to  em- 
ployees. Advocates  of  regulation  go  still  further,  however, 
and  declare  that  the  number  of  stores  should  be  limited.  By 
such  regulation,  it  is  maintained,  the  standard  of  retailing 
would  be  automatically  raised,  resulting  in  better  working 
conditions  for  the  retailers  themselves  and  better  service  for 
the  consumers.  A  business  or  license  tax  has  most  frequently 
been  proposed  as  the  means  whereby  such  a  limitation  could 
be  effected. 

To  understand  fully  what  this  proposal  comprehends  it 
will  be  necessary  to  give  some  consideration  to  the  nature  of 
business  taxation. 


Business  Taxes.— "Business  taxes"  is  an  indefinite  term 
covering  what  are  variously  called  "license  taxes,"  ''business 
Hcenses,"  ''business  taxes,"  "privilege  taxes,"  "occupation 
taxes,"  and  so  on.  In  a  limited  way  nearly  all  states  in  the 
Union  have  some  form  of  tax  corresponding  to  some  one  or 
more  of  the  above.  When  the  amount  assessed  upon  any 
business  or  occupation  is  barely  enough  to  cover  "the  legiti- 
mate costs  of  regulation  and  no  more,  considering  all  probable 

346 


PUBLIC  REGULATION 


347 


consequences,"'  it  is  technically  known  as  a  fee  and  not  as  a 
tax.  A  tax  presupposes  a  surplus  of  revenue  above  all  costs 
of  collection  and  other  expenses  incurred  by  the  taxing  body 
in  its  relations  to  the  person  or  business  taxed.  But  the  popu- 
lar use  of  the  word  "tax"  includes  both  meanings. 

Licenses  and  Taxes.— Formerly  the  kind  of  license  most 
frequently  met  with  was  the  license  fee  or  tax  upon  the  manu- 
facturers and  distributors  of  liquor.  At  the  present  time 
the  amusement  enterprises  take  the  lead  in  the  payment  of 
license  taxes.  A  license  has  been  defined  as  a  "privilege 
granted  by  the  State,  usually  on  payment  of  a  valuable 
consideration,  though  this  is  not  essential.  To  constitute 
a  privilege  the  grant  must  confer  authority  to  do  some- 
thing which  without  the  grant  would  be  illegal;  for  if  what  is 
to  be  done  under  the  license  is  open  to  everyone  without  it, 
the  grant  would  be  merely  idle  and  nugatory,  conferring  no 
privilege  whatever.  But  the  thing  to  be  done  may  be  some- 
thing lawful  in  itself,  and  only  prohibited  for  the  purposes 
of  the  license;  that  is  to  say,  prohibited  in  order  to  compel 
the  taking  out  of  a  license."^ 

Taxes,  using  the  word  in  the  popular  sense,  may  be  col- 
lected by  a  state  either  under  its  taxing  power  or  under  its 
police  power.  Under  the  taxing  power  the  state  secures  its 
general  revenues.  This  power,  which  is  of  very  wide  scope 
and  subject  only  to  constitutional  and  statutory  limitations, 
may  be  applied  in  almost  any  way.  The  only  limitations  un- 
der most  state  constitutions  and  in  court  practice  are  that 
the  tax  must  be  uniform   and  must   not   be   oppressive. 

Under  the  police  power,  which  "extends  to  the  protection 
of  the  lives,  health,  and  property  of  the  citizens,  and  to  the 
preservation  of  good  order  and  public  morals,"^  any  state 


'"Cooley    on    Taxation," 
'/</.,   pages    1 137-8. 


page    1 138. 


348 


ECONOMICS  OF  RETAILING 


PUBLIC  REGULATION 


349 


can  license  any  occupation  which  can  be  shown  to  need  regu- 
lation. In  such  cases  the  amount  collected  for  licenses  is  such 
as  is  judged  will  pay  the  expenses  of  regulation.  Frequently, 
however,  these  two  powers  of  the  state  are  combined  in  the 
same  act,  and  the  result  is  taxation  for  revenue  and  for 
regulation  at  the  same  time.  In  these  cases  the  amount  col- 
lected is  something  more  than  a  fee.     It  is  in  fact  a  true  tax. 

Paying  Business  Taxes.— "Business  taxes"  may  be  col- 
lected either  as  an  amount  payable  periodically  in  the  same 
way  as  any  other  general  tax,  or  as  a  payment  for  a  license. 
This  is  a  technical  distinction  that  is  necessary  to  an  under- 
standing of  how  the  license  system  works.  If  a  tax  is  not 
paid  when  due,  the  business  upon  which  it  is  levied  does  not 
thereby  become  unlawful,  but  the  tax  must  be  collected 
through  the  same  channels  as  those  prescribed  for  other  gen- 
eral taxes.  Under  a  license  system,  the  payment  for  the 
license  must  be  made  before  the  business  can  lawfully  begin. 
The  common  business  tax,  like  a  property  tax,  is  payable  after 
the  business  has  come  into  existence,  but  the  license  payment 
must  be  made  before  business  can  be  transacted. 

Purposes  of  Business  Taxes. — The  purpose  of  the  busi- 
ness tax  may  be  either  to  secure  a  revenue  for  the  govern- 
ment or  to  regulate  the  occupations  or  businesses  subject  to  the 
tax.  The  latter  was  obviously  the  aim,  at  least  in  part,  in 
most  communities  where  saloons  were  required  to  pay  a  li- 
cense fee.  For  similar  reasons,  bowling  alleys,  billiard  halls, 
and  theatres  are  often  required  to  take  out  licenses  since  there 
is  commonly  some  necessity  for  regulation  in  connection  with 
the  conduct  of  .such  establishments. 

In  some  cases,  the  aim  of  the  business  tax  is  to  prohibit 
the  business  or  occupation  entirely  by  fixing  the  tax  so  high 

^  Davock  V.   Moore,   105  Mich.    120. 


as  to  make  it  unprofitable,  or  undesirable,  to  continue  in  it. 
Lotteries,  gambling  houses,  bucket  shops,  and  also  saloons 
have  in  some  cases  thus  been  taxed  out  of  existence.  Prohibi- 
tion of  such  institutions  by  taxation,  however,  is  an  indirect 
method  that  is  not  at  present  strongly  favored.  This  method 
usually  results  in  failure  to  prohibit.  If  the  tax  is  not  placed 
high  enough,  the  business  will  continue  to  exist,  and  if  it  is 
made  too  high,  practice  shows  that  the  tax  will  be  evaded. 

Monopolies  and  Taxes.— A  business  tax  or  license  system 
could  be  used  to  build  up  a  monopoly.  A  tax  of  such  nature 
is  that  imposed  by  the  National  Government  of  lo  per  cent  on 
the  note  issues  of  state  banks.  The  rate  is  prohibitive  and 
gives  to  the  national  banks  the  monopoly  of  issuing  bank  notes. 
At  one  time  it  was  common  for  European  sovereigns  to  grant 
patents  or  licenses  to  private  individuals  in  return  for  high 
fees  or  payments,  giving  those  individuals  practical  mono- 
polies of  certain  businesses  in  certain  communities.  Such 
grants  were  prohibited  in  England  in  1624,  and  in  this  coun- 
try such  acts  are  forbidden  by  the  constitution. 

Practically,  however,  a  high  license  or  business  tax  sys- 
tem may  have  the  effect  of  granting  a  partial  monopoly,  for 
the  reason  that,  while  the  privilege  may  be  exercised  by  any 
one  upon  the  payment  of  a  fee  or  tax,  it  may  not  be  profitable 
for  more  than  one  to  procure  the  license  and  engage  in  the 
business,  consequently  that  one  gains  practical  control  of  the 
trade  in  that  community. 

Peddlers  Taxes.— A  business  tax  may  be  levied  for  the 
purpose  of  protecting  local  industries  or  businesses  by  pre- 
venting competition  from  outsiders.  The  license  tax  required 
of  peddlers  comes  under  this  head.  The  local  merchants  of 
a  town  are  protected  to  the  extent  that  the  tax  deters  ped- 
dlers from  engaging  in  this  form  of  traf^c  in  that  community. 


350 


ECONOMICS  OF  RETAILING 


PUBLIC  REGULATION 


351 


f#' 


The  house-to-house  method  of  selling  has  certain  advantages, 
however,  that  may  make  it  profitable  for  a  peddler  to  go  on 
with  his  business  even  if  he  must  pay  a  high  tax.  The  occa- 
sional peddler  who  does  pay  it  reaps  another  advantage  due 
to  the  fact  that  his  competition  with  other  peddlers  has  been 
materially  reduced.  This  point  explains  why  peddling  does 
not  entirely  cease  even  when  the  peddler's  tax  is  placed  at  a 
very  high  figure. 

Some  writers  on  taxation  have  held  that  peddlers  render 
to  the  consuming  public  a  service  of  superior  value,  a  service 
that  is  much  demanded,  and  that,  on  this  account,  peddling  is 
difficult  to  suppress  or  restrict.  In  accordance  with  this  view 
it  has  been  held  that  the  tax  on  peddlers  should  be  made 
low.  Professor  T.  S.  Adams  held  this  view  some  years  ago,* 
and  J.  W.  Sullivan,  in  "Markets  for  the  People,"  urges  that 
all  bars  or  restrictions  on  peddling  be  let  down. 

Class  Taxes. — A  business  tax  Is  frequently  levied  upon 
certain  classes  of  individuals,  particularly  those  engaged  in 
certain  professions  which  might  otherwise  escape  payment  of 
taxes.  For  example,  a  lawyer  might  enjoy  a  handsome  in- 
come, but  have  no  assessable  property  that  an  ordinary  tax 
could  be  collected  upon.  A  business  or  professional  tax 
would  be  the  means  of  making  him  pay  a  direct  contribution 
to  the  public  funds.  The  tax  on  peddlers,  already  referred 
to,  is,  in  a  certain  sense,  such  a  tax  also.  Justice  is  preserved 
between  the  local  merchant  who  must  pay  property  taxes  and 
the  itinerant  peddler  who  has  nothing  taxable  under  the 
general  property  tax  as  ordinarily  administered,  by  assess- 
ing the  peddler  a  special  license  fee  or  tax. 

The  following  quotation  from  the  Cyclopedia  of  Law  and 
Procedure  will  give  some  idea  of  the  scope  of  the  business 


: 


*  Hollander,   "Studies  in   State  Ta:«atipp,"  pages  4S-Si- 


tax,  and  the  number  and  kinds  of  businesses  and  occupations 
that  may  lawfully  be  subjected  to  a  business  tax.*^ 

As  proper  subjects  for  license  or  tax  the  following  oc- 
cupations or  privileges  have  been  sanctioned  by  the  court. 
Any  commercial  or  professional  business;   corporate   fran- 
chises   and    privileges;    dealing   in    "futures";    the    keeping 
and     use     of     animals;      the     keeping     of      billiard     or 
pool  tables  for  profit;  the  keeping  of  bowling  alleys;  keeping 
concert    and   dancing   halls;    keeping   laundries;   keeping   a 
restaurant;  mechanical  trades  and  pursuits  in  general;  mer- 
cantile business   in  general;  publishing  a  newspaper;'  rais- 
ing or  grazing  sheep;  sales  of  goods;  sales  on  exchanges; 
selling    certain    publications;    selling    foreign    merchandise;' 
selling  newspapers;  selling  to  employees  or  tenants;  theatres 
and  shows;  vehicles  and  means  of  transportation  in  general; 
vehicles  used   in  carrying  passengers  or  property   for  hire 
or  profit;  vehicles  used  by  merchants  or  manufacturers  in 
their  own   private   business;   and   vessels.     And   among  the 
persons  whose  occupations  have  been  declared  to  be  properly 
subject  to  license  or  tax  are  the  following:  architects;  at- 
torneys; auctioneers;  bakers;  banks;  bill  posters;  brewers; 
bridge    companies;    brokers;    carriers;    cigar    and    tobacco 
dealers;  confectioners;  corporations;   dairymen;  dealers   in 
or  sellers  of  oleomargarine;  dealers  in  second-hand  goods; 
dealers   in   trading   stamp   enterprises;   dentists;   detectives; 
domestic  corporations;  druggists;  drummers  and  canvassers,' 
emigrant   agents;    employment   agents;    express   companies,' 
ractors  and  brokers;  farriers;  ferries;  foreign  corporations,' 
foreign  insurance  companies;  grocery  dealers;  hawkers  and 
peddlers;    hospitals;    ice    dealers;     inn   keepers;     insurance 
brokers  or  companies ;  itinerant  merchants  or  traders ;  junk 
dealers;  dealers  in  second-hand  goods;  keepers  in  gaming 
houses;  liquor  dealers;  livery  stable  keepers;  lumber  dealers; 
manufacturers;    meat    dealers;    merchants;    milk    dealers  J 
money  lenders;  note  shavers;  packers  and  carriers  of  oy- 
sters; patent  medicine  venders;  pawnbrokers;  persons  deal- 
ing  in    food;   pharmacists;   photographers;   physicians   and 


"Vol.   25,   pages  416-421, 


!rfA-i*is~^i¥^a?=S'?r^ 


352  ECONOMICS  OF  RETAILING 

surgeons;  pilots;  pipe  line  companies;  sewing  machine 
agents;  soda  water  dealers;  steamship  companies;  street 
railroad  companies ;  teachers ;  telegraph  and  telephone  com- 
panies; turnpike  companies;  vendors  of  lottery  tickets; 
warehouse   men;   water   companies;   and  wood  dealers. 

Methods  of  Assessment. — The  methods  of  assessing  the 
amount  of  the  license  or  business  tax  vary  greatly  and  it  is 
more  than  likely  that  the  success  of  business  taxation  is  modi- 
fied by  the  kind  of  base  or  basis  selected  in  administering  the 
tax.     The  following  methods  are  current : 

1.  In  proportion  to  the  average  value  of  the  stock  in 

trade  or  equipment  for  doing  business. 

2.  In  proportion  to  the  annual  purchases. 

3.  In  proportion  to  the  total  sales,  gross  receipts,  or 

income.     This  is  virtually  an  income  tax  applied 
to   businesses. 

4.  In  proportion  to  gross  profits  variously  defined. 

5.  In  proportion  to  net  or  divided  profits. 

6.  In  proportion  to  the  rental  value  of  the  properties 

used  by  the  business. 

7.  A  fixed  amount  upon  an  occupation. 

8.  A  fixed  amount  upon  an  occupation  based  upon  the 

size  of  the  town,  or  upon  other  trade  advantages. 

9.  A  progressive  rate  based  upon  the  volume  of  the 

business.  / 

10.  A  progressive  rate  based  upon  the  number  of  lines 
of  goods  handled,  as  for  example  on  department 
stores. 

In  some  of  its  forms  at  least,  the  business  tax  is  easy 
to  levy  and  easy  to  collect.  Naturally  it  has  been  widely  used 
for  fiscal  as  well  as  for  regulative  purposes.  It  has  often 
served  countries  as  well  as  municipalities  in  times  of  financial 
stress.     In  some  countries,  as  for  example,  in  France,  Prussia, 


PUBLIC  REGULATION 


353 


and  Canada  the  business  tax  occupies  an  important  place  in 
the  fiscal  machinery  of  the  government.  In  many  parts  of  the 
United  States,  it  supplies  important  additions  to  the  public 
funds.    Brief  descriptions  follow  of  foreign  systems. 

The  French  Business  Tax.— In  France,  the  business  tax 
(patente)  was  first  collected  in  1791  and  has  been  continued 
down  to  the  present,  but  with  many  modifications.  Practically 
all  persons  employed  in  gainful  occupations  are  called  upon 
to  contribute.  The  method  in  which  it  is  apportioned  is 
somewhat  complex.  Part  of  it  is  fixed  in  amount,  depending 
upon  the  kind  of  business,  the  number  of  employees,  if  a  de- 
partment store  or  other  like  concern,  the  population  of  the 
community  served,  and  some  other  considerations.  The  other 
part  of  the  tax  is  variable  and  is  dependent  in  amount  upon 
the  rental  value  of  the  property  used  by  the  business.® 

The  Prussian  System.— Prussia  followed  France's  example 
and  enacted  a  law  for  a  similar  tax  (gewerbesteuer)  in  1810. 
But  the  later  basis  of  the  Prussian  tax  was  in  all  cases  either 
the  annual  profits  or  the  capital  of  the  individual  business. 
Wherever  it  was  possible  to  determine  the  earnings  or  profits, 
these  were  taken  as  the  base,  but  where  such  information  was 
not  available,  the  capital  value  was  taxed.  The  amount  of  the 
tax  placed  on  the  capital  value  was  made  to  correspond  as 
nearly  as  possible  to  the  amounts  collected  upon  the  basis  of 
earnings  or  profit  from  concerns  with  the  same  capitalization.^ 

In  1896  Prussia  passed  a  law  laying  a  special  business 
tax  on  department  stores.  Three  years  later  Bavaria  did 
likewise.  The  French  business  tax,  just  referred  to,  had  al- 
ready been  applied  to  such  institutions.  The  German  statutes 
were  enacted  in  response  to  a  cry  for  help  from  the  small 

"  Bullock,  "Selected  Readings   in  Public  Finance,"  pages   121-128 
'  Id.,  pages  328-336.  "* 


Fn'SSSSasJE^JSSS 


354 


ECONOMICS  OF  RETAILING 


PUBLIC  REGULATION 


355 


dealers  who  were  losing  ground  in  competition  with  the  new 
and  rapidly  growing  department  stores.  The  acts  were  aimed 
to  check  these  institutions  and  to  protect  the  small  shop- 
keepers. A  department  store  was  defined,  and  a  progressive 
tax  laid  on  sales  amounting  to  more  than  400,000  marks  per 
year.  The  amount  of  the  tax  levied  by  Prussia  on  depart- 
ment stores  was  comparatively  small.  Beginning  with  one-half 
of  I  per  cent  for  sales  of  400,000  marks,  the  rate  increased  as 
the  sales  increased  up  to  a  maximum  of  3  per  cent  of  sales. 
No  store,  no  matter  how  great  its  sales  were,  was  required  to 
pay  a  greater  percentage  than  this.  The  French  method  of 
taxing  department  stores  differs  from  the  German  method  in 
that  the  number  of  employees,  rather  than  the  volume  of  sales, 
serves  as  the  basis  upon  which  the  tax  rate  is  progressively 
increased.^ 

Canada's  Tax— In   Canada,    the    Province    of    Ontario 
fevies  a  tax  on  business  proportional  to  the  rental  value  of 
the  property  in  use;  but  there  is  a  rating  of  businesses  so  thai 
the  retailers  pay  on  25  per  cent,  wholesalers  on  75  per  cent 
manufacturers  on  60  per  cent,  and  manufacturers  and  whole- 
salers of  liquors  on  150  per  cent  of  this  rental  value.     As 
between  retailers  and  wholesalers,  the  theory  is  that  retail 
stores  occupy   so   much   more  valuable   land   than   wholesale 
stores  that  this  should  be  taken  into  account  in  fixing  the 
tax.     In  Winnipeg,  retail  stores  were  assessed  from  1893  to 
1906  at  the   rate  of  about  three  cents  per   square   foot  of 
store  floor  space.     The  act  providing  for  this  assessment  did 
not  prove  entirely  satisfactory,  and  in   1906  a  change  was 
made  to  the  Ontario  plan.^ 

Business  Taxes  in  the  U.  S.— In  the  United  States  the  Fed- 
eral Government  has  at  various  times  resorted  to  business  tax- 

^Huirj.    A.,    "Taxes    on    Department    Stores,"    Quarterly   Journal    of   Economic::, 
'^'^^^•Intemational   Conference  on    State   and   Local   Taxation."    1908.   pages  286-:.8H. 


I 


I 


i 


ation,  particularly  during  times  of  financial  need.  For  ex- 
ample, in  1862,  there  was  laid  a  business  tax  affecting  480 
occupations  calling  for  payments  from  each  of  from  $5  up  to 
$500.^^  The  measure  was  entirely  for  revenue  purposes,  al- 
though certain  businesses,  such  as  those  that  handled  liquors 
and  tobacco,  were  required  to  contribute  at  higher  rates  than 
the  others. 

After  the  war,  the  revenue  taxes  were  removed  from  most 
businesses,  but  continued  though  reduced,  on  liquor  and  to- 
bacco. As  these  last  named  articles  were  almost  universally 
taxed  within  the  states  also,  it  not  infrequently  happened  that 
the  same  business  had  to  procure  and  pay  for  as  many 
as  three  or  even  four  licenses — federal,  state,  county,  and 
municipal — before  beginning  operations. ^^ 

In  1898,  during  the  Spanish  War,  federal  business  taxes 
were  again  collected,  but  in  this  case,  in  addition  to  liquor 
and  tobacco  businesses,  only  on  bankers,  brokers,  pawn- 
brokers, and  places  of  public  amusement.  After  the  war 
these  latter  taxes  were  removed. 

« 

State  Business  Taxes. — At  the  present  time  business  taxes 
form  a  part  of  the  regular  state  revenue-producing  systems 
in  Alabama,  Florida,  Georgia,  Kentucky,  Louisiana,  Mary- 
land, Mississippi,  Missouri,  North  Carolina,  Pennsylvania, 
Tennessee,  Virginia,  and  West  Virginia.  This  list  includes 
all  of  the  Southern  states  except  Texas  whch  repealed  all 
business  tax  laws  in  1907,  and  South  Carolina,  which  permits 
all  li:ense  fees  to  go  into  the  county  funds. ^^ 

In  a  considerable  number  of  states  other  than  those  named, 
the  privilege  of  collecting  business  taxes  is  granted  by  the 
state  to  the  municipalities,  and  a  great  number  of  the  latter 
have   availed   themselves  of   this   means  of   increasing  their 


i«Redfield,  A.  A.,  "Handbook  of  the  U.  S.  Tax  Law  of   1862,"  pages  115-121,  365. 
"Ely,    R.    T.,    "Taxation    in    American    States    and    Cities,"    page    203. 
^"Wealth,    Debt   and   Taxation,"    Spec.    Report,    U.    S.    Census,    1907. 


356  ECONOMICS  OF  RETAILING 

incomes.     By  far  the  greater  portion  of  the  funds  from  this 
tax  never  get  beyond  the  local  public  treasuries. 

"About  12  per  cent  of  the  state  tax  receipts  in  1902  came 
from  licenses  and  permits,  and  taking  the  state  and  local  gov- 
ernments together  the  revenue  from  this  source  amounted  to 
$75,000,000,  of  which  $55,000,000  came  from  liquor  li- 
censes. 

Municipal  Taxes. — Among  the  larger  cities  in  the  country 
v^here  business  taxes  are  collected,  the  percentages  of  total 
revenues  obtained  from  this  source,  for  the  year  1907,  were  as 
follows  :^* 

Kansas   City    18% 

Atlanta    12 

Savannah    20 

Norfolk    26 

Charleston    11 

Birmingham    37 

Mobile    30 

Augusta    12 

Montgomery    33 

Jacksonville    26 

Knoxville    .* 15 

Macon    18 

Taxable  Occupations. — In  the  states  where  business  taxa- 
tion prevails,  a  great  number  of  different  occupations  and 
businesses  are  taxed.  The  United  States  Bureau  of  the  Cen- 
sus enumerated  188  different  classes  with  several  subclassifi- 
cations  in  its  special  report,  ''Wealth,  Debt,  and  Taxation," 
in  1907.  No  state  system  includes  all  of  these.  Mississippi 
taxed  119  occupations  some  years  ago  ^^  and  Louisiana  has  a 
constitutional  provision  permitting  the  legislature  to  lay  a  tax 
on  all  occupations  whatsoever,  except  clerks,  laborers,  clergy- 
men, school  teachers,  and  those  engaged  in  mechanical,  agri- 
cultural,   horticultural,    and   mining   pursuits,    and   manufac- 

"  Ely,  R.  T.,   "Outlines  of  Economics,"  Revised  Edition,   page  648. 

"  Statistics   of  Cities,"   Special   Report  of  U.   S.   Census,    1908,  from  Table  37. 

"*  Hollander,   "Studies  in   State  Taxation." 


PUBLIC  REGULATION 


357 


turers  other  than  those  of  distilled,  alcoholic  or  malt  liquors, 
tobaccos,  cigars,  and  cottonseed  oil.i«  Many  cities  extend 
the  business  tax  system  even  farther  than  the  states  do.  Wil- 
mington, North  Carolina,  formerly  taxed  124  classes  of  occu- 
pations, and  Atlanta  enumerated  466  taxable  items  under  the 
head  of  business  taxes. 

Among  the  specific  occupations  or  businesses  taxed,  saloons 
and  liquor  businesses  formerly  led  the  list.  There  were  prob- 
ably no  communities  in  this  country  where  saloons  were  not 
licensed.  At  the  present  time  amusement  places,  traveling 
vendors,  and  auctioneers  take  the  lead. 

Who  Pays  the  Tax?— Who  pays  the  business  tax,  the  re- 
tailer or  the  consumer?  There  is  not  enough  direct  evidence 
at  hand  upon  which  to  base  a  conclusive  answer.  There  is 
a  good  deal  of  disagreement  among  both  economists  and 
business  men  about  the  matter.  According  to  Seligman,'' 
under  competitive  conditions,  a  tax  on  profits  tends  in  the  long 
run  to  be  shifted  to  the  consumer,  while  under  monopoly 
conditions,  if  the  demand  is  elastic,  and  if  the  monopoly  price 
has  already  been  reached,  the  tax  will  not  be  shifted. 

It  is  common  observation  among  economists  that  a  tax  of 
a  fixed  amount  on  an  occupation  is  generally  not  shifted  if 
the  amount  of  the  tax  be  small.  Practice  has  shown  that 
prices  tend  to  remain  at  customary  levels  after  the  tax  is  laid. 
But  when  the  tax  is  high  it  is  generally  shifted. 

Certainly  such  a  tax  would  be  considered  an  expense  of 
the  business  under  most  mercantile  accounting  systems,  and 
in  fixing  selling  prices,  the  business  tax  would  be  considered 
and,  if  possible,  would  be  prorated  in  some  way  over  all  the 
goods  offered  for  sale.  If  the  concerns  do  not  succeed  in 
getting  the  prices  asked  for  the  goods,  and,  therefore,  have 

"  Millis,     "Business    and    Professional    Taxes,"    Journal    of    Political    Economv 
16:76-87.  ■'^' 

"  Seligman,   E.  R.  A.,  "Shifting  and  Incidence  of  Taxation." 


II 

ji 


358 


ECONOMICS  OF  RETAILING 


to  mark  them  down  to  lower  figures  in  order  to  move  them, 
obviously  the  tax  falls  upon  the  merchant.  But  the  more 
successful  merchants,  it  is  quite  likely,  will  be  able  to  shift 
the  tax,  and  those  who  can  not  do  so  at  one  time  or  in  one 
season  will  seek,  by  making  changes  in  their  stock  or  in  their 
selling  methods,  to  increase  their  net  profits  to  some  customary 
point  over  and  above  all  expenses  of  the  business,  including 
the  tax. 

Shifting  the  Tax.— The  problem  of  shifting  and  incidence 
as  applied  to  most  business  is  exceedingly  complex.  Pro- 
fessor Seligman's  analysis,  while  probably  theoretically  cor- 
rect, throws  but  little  light  on  the  concrete  instance.  If  the 
retail  store  manager  finds  that  he  is  not  making  the  usual 
profit,  he  may  blame  his  purchases,  and  seek  to  buy  thereafter 
such  goods  as  will  yield  a  profit  above  all  expenses  of  the 
business.  In  marking  the  prices  on  his  goods,  he  usually 
makes  allowance  for  all  expenses  of  the  business  including 
taxes  of  various  kinds,  and  when  some  goods  cannot  be  sold 
for  prices  bearing  the  full  store  burdens,  other  goods  are 
selected  and  priced  so  as  to  make  up  the  deficits.  In  an  or- 
dinary merchandise  assortment  there  may  be  some  goods  sold 
which  do  not  pay  even  the  direct  expenses  of  handling,  while 
others  may  yield  profits  several  times  the  amount  of  these 
expenses.  Since  there  are  so  many  different  articles  to  be 
priced  and  sold  in  a  retail  store,  since  qualities  and  cost  prices 
differ  so  widely,  and  since  there  are  other  factors  entering 
into  retail  merchandising  besides  price,  such,  for  example,  as 
service,  custom,  and  convenience,  it  is  exceedingly  difficult  to 
determine   whether   a   specific   tax   in   a   specific   instance   is 

shifted  or  not. 

There  are  undoubtedly  some  retailers  who  could  not  shift 
a  business  tax ;  namely,  those  on  the  margin— those  barely  able 
to  make  ends  meet  before  the  levy  of  such  a  tax.     Naturally 


PUBLIC  REGULATION 


359 


the  tax,  if  considerable,  would  drive  such  dealers  over  the 
line  into  failure  or  bankruptcy.  In  these  cases,  however,  the 
tax  may  be  considered  only  as  a  last  straw  to  an  already  over- 
heavy  burden. 

Opposition  to  Business  Regulation. — Opponents  of  regula- 
tion by  means  of  business  license  or  taxation  assert  that  busi- 
ness taxes  have  the  tendency  to  overburden  the  small  dealer 
while  not  making  much  difference  to  the  bigger  merchant.  It 
is  also  asserted  that  a  business  tax,  especially  when  in  the  form 
of  a  license,  if  considerable,  makes  it  difficult  for  beginners  to 
get  a  start,  since  such  a  tax  must  be  paid  before  the  business 
can  begin  and  usually  amounts  to  the  same  in  the  early  stages 
of  building  up  a  business  as  it  does  after  the  business  is  well 
established. 

Such  a  tax  also  checks  freedom  of  movement  from 
one  occupation  or  business  to  another,  and  therefore  prevents 
individuals  from  seeking  better  opportunities  and  making  the 
most  of  themselves.  A  business  tax,  if  made  heavy  enough, 
unquestionably  reduces  the  number  of  persons  in  the  par- 
ticular business  that  is  taxed. 

Are  these  criticisms  valid  and  important?  That  a  busi- 
ness tax,  if  heavy  enough,  will  tend  to  make  it  more  difficult 
to  enter  the  retail  business  is  admittedly  one  of  the  reasons 
for  such  a  tax.  But  any  means  that  would  effectually  close 
the  door  of  opportunity  to  all  who  aspired  to  become  retailers 
in  a  community  would  be  obviously  unfair  and  unjust,  not 
only  to  individuals,  but  also  to  the  community  itself.  Any 
measure  proposing  such  radical  exclusion  should  meet  with 
failure.  But  total  exclusion  is  an  entirely  different  matter 
from  a  limited  regulation  of  the  number. 

Arguments  for  Business  Regulation. — It  is  held  by  those 
who  favor  regulation  that  the  business  tax,  if  used  to  limit 


f 


■ 


36o 


ECONOMICS  OF  RETAILING 


the  number  of  persons  who  may  engage  in  retailing,  will 
simply  eliminate  those  who  are  now  nearest  the  margin  and 
not  the  successful  concerns,  presumably  managed  by  those 
best  fitted  for  the  work.  It  may  be  questioned  seriously 
whether  an  absolutely  unrestricted  freedom  of  entering  any 
business  is  an  unqualified  benefit  either  to  the  persons  entering 
or  to  the  general  public.  So  far  as  the  retail  business  is 
concerned,  such  unrestricted  freedom  encourages  persons  with- 
out the  necessary  ability,  training,  or  capital  to  rush 
in  and  waste  their  energies  and  substance,  and,  after  their 
failure,  to  be  followed  by  a  stream  of  other  incom- 
petents. Among  the  results  of  this  course  of  events  is  a  con- 
stant disorganization  of  the  retail  business,  frequent  occur- 
rences of  unfair  competition,  and  generally  unsatisfactory 
service  to  the  public. 

Professor  Seager  argues  for  the  business  license  system 
as  follows: 

Retail  trade,  whether  in  liquors,  or  in  drugs,  milk,  ice, 
groceries,  provisions,  or  even  merchandise,  is  strikingly 
wasteful  when  exposed  to  the  effects  of  an  unregulated 
competition.  The  needless  multiplication  of  stocks  and  sell- 
ing places,  the  reckless  entry  into  the  field  of  men  with  little 
capital  and  less  experience  due  to  the  feeling  that  "anyone 
can  keep  a  store,"  and  the  losses  which  result  owing  to  the 
fact  that  only  competent  persons  can  make  store-keeping 
pay,  the  costly  duplication  of  distributing  machinery — all 
these  aspects  of  retail  trade  supply  telling  arguments  against 
a  competitive  organization  of  industry.  The  high  license 
system,  although  not  primarily  intended  for  that  purpose, 
substitutes  regulated  for  unregulated  competition.  It  is 
believed  to  be  within  the  truth  to  claim  that  more  than  half 
of  the  revenue  that  the  government  derives  from  license 
taxes  is  wealth  that  without  the  moderate  regulation  the  sys- 
tem imposes  would  have  been  wasted  in  vain  competition. 
The  incidence  of  the  remainder  of  the  tax  is  similar  to 
that   of   excise   or   customs    taxes.     In   the    case    of   liquor 


PUBLIC  REGULATION  361 

licenses  a  part  of  it  is  probably  borne  by  the  holder  of  the 
license  and  part  of  it  by  the  consuming  public  in  the  slightly 
higher  prices  they  are  required  to  pay  for  the  same  quantity 
and   quality   of    liquor.^^ 

Experience  with  it  (the  liquor  license)  in  operation 
has  made  prominent  certain  economic  advantages  which 
suggest  the  desirability  of  applying  it  to  many  other  branches 
of  trade.  The  selling  and  distribution  of  milk,  ice,  gro- 
ceries, provisions,  etc.,  admit  of  even  larger  savings  through 
the  concentration  of  management  brought  about  by  the  high 
license  system  than  the  selling  and  distribution  of  liquors. 
These  businesses  offer  a  large  and  practically  untouched 
field  for  the  tax  gatherer  and  just  as  the  payment  of  high 
licenses  has  served  neither  to  make  the  saloon  business 
unprofitable  nor  to  compel  the  consumer  to  pay  much  more 
for  his  beer  and  whiskey,  so  it  is  believed  that  the  payment 
of  high  license  by  milk  dealers,  ice  companies,  grocers, 
butchers,  etc.,  would  serve  merely  to  concentrate  these 
businesses  into  fewer  and  more  competent  hands  without 
appreciably  raising  the  prices  of  the  commodities  sold.  By 
extending  its  license  system  to  include  these  and  other 
businesses,  every  state  in  which  large  cities  are  found  could 
put  itself  in  a  position  to  dispense  with  the  returns  from  the 
general  property  tax.^® 

Taxes  Limit  Competition. — That  the  business  tax  does 
under  most  circumstances  limit  competition,  especially  if  made 
high  enough,  experience  has  proved.  For  example,^*'  before 
the  war  the  German  department  store  tax  laid  for  the  purpose 
of  checking  the  growth  of  the  department  stores  in  order  to 
help  the  small  shopkeepers  resulted,  according  to  reports,  in 
considerable  benefit  to  the  department  stores  themselves  by  dis- 
couraging other  firms  from  entering  the  field  and  thus  giving 
the  stores  already  in  existence  control  over  the  entire  trade. 
Many  other  examples  of  the  restriction  of  competition  could 

**  Seager,  "Introduction  to  Economics,"  pages  560-561. 
^^Id.,   page    584.  . 

^•'Gehring,  Hans,  "Die  Warenhaussteuer  in  Preussen,  Ein  Beitrag  zur  mannischen 
Mittelspandspolitik,"    1905,   pages   65-72. 


II 


362 


ECONOMICS  OF  RETAILING 


be  drawn  from  all  parts  of  this  country  wherever  the  license 
tax  has  been  employed.  In  some  cases  the  increase  in  volume 
of  business  and  the  resulting  increase  in  profits  accruing  to  the 
remaining  firms  who  pay  the  tax  have  been  sufficient  to  make 
entirely  unnecessary  any  increase  in  prices  of  the  goods  sold  to 
the  consumers. 

License  System  Best.— If  regulation  of  the  retail  business 
is  to  be  attempted,  no  other  plan  suggested  so  far  seems  so 
easy  to  apply  as  a  license  system.  Through  its  use  the  num- 
ber of  retailers  could  be  limited,  and,  if  thought  best,  certain 
qualifications  necessary  for  efficient  retailing,  such  as  knowl- 
edge, experience,  and  a  minimum  amount  of  necessary  capital 
could  be  required.  Regulation  might  be  carried  still  further 
through  such  means  as,  for  example,  setting  standards  of 
service,  and  supervising  price-fixing.  It  is  not  urged  that 
all  of  these  measures  are  either  necessary  or  desirable,  but, 
simply,  that  the  degree  of  regulation  need  not  be  confined  by 
anything  but  the  demands  of  public  policy  under  this  method. 

Regulation  Eliminates  Parasitism. — It  is  probable  that 
certain  gains  would  accrue  to  the  public  from  a  limited  regula- 
tion and  supervision  of  the  retail  business.  It  is  certain  that, 
in  many  localities,  the  retailers  themselves  would  be  much 
benefited  by  such  regulation.  Much  of  the  capital  and  energy 
now  wasted  in  senseless  competition  could  then  be  turned  into 
channels  of  service  to  the  consumer.  Regulation  would  tend 
to  insure  to  the  dealer  a  fair  return  for  his  service.  At  the 
present  time,  under  the  competition  found  in  many  places,  the 
business  not  only  does  not  pay  a  fair  wage  to  those  who  are 
engaged  in  it,  but  is  supported  in  part  at  least  by  the  returns 
from  other  industries.  The  capital  used,  it  seems,  is  largely 
accumulated  from  other  fields,  and  the  wages  paid  to  employees 
are  in  many  cases  so  low  as  to  make  it  necessary  for  the 


PUBLIC  REGULATION 


3^3 


younger  employees,  at  least,  to  depend  for  part  of  their  support 
upon  their  homes.  In  other  words,  present  competition  has 
made  the  retail  business  partly  parasitic.  This  condition,  so  far 
as  it  prevails,  is  essentially  evil.  Each  industry  should  stand  on 
its  own  feet,  pay  its  own  way,  provide  for  its  own  emergencies 
and  risks,  and  be  the  source  of  the  capital  necessary  to  make 
extensions.  If  regulation  is  established,  these  matters  would 
have  to  be  considered,  and  the  parasitic  element  would  prob- 
ably be  eliminated. 

Difficulties  of  Regulation—There  are  large  difficulties  in 
the  way,  however,  for  legal  regulation  of  the  retail  business 
in  this  country.     It  would  probably  have  to  be  accomplished 
under  the  exercise  of  the  state's  police  power.     In  order  to 
invoke  this  power  it  must  first  be  shown  that  such  regulation 
is  necessary.     For  example,  *To  license  plumbing  it  must  be 
shown  that  this  will  tend  to  promote  the  public  health,  morals, 
safety,   comfort,   or  welfare,   or  to  suppress   disease."""     In 
some  cases  it  might  prove  quite  difficult  to  demonstrate  the 
need  of  such  regulation  in  the  face  of  the  court  precedents  of 
the  past.     To  illustrate,  ''A  tax  on  department  stores  can  not 
be  shown  to  be  such  (necessary  to  promote  the  public  health, 
safety,  comfort  or  welfare),  hence  cannot  be  sustained  under 
the  police  power."" 

The  Missouri  law  under  which  the  case,  just  quoted  from, 
came  to  the  supreme  court  of  that  state  was  in  many  respects 
similar  to  the  German  department  store  law,  but  this  decision 
declared  it  unconstitutional  on  the  grounds  that  such  an  act 
was  unnecessary,  unfair,  and  constituted  class  legislation. 

Some  economists  have  also  taken  a  view  opposed  to  such 
regulation  and  taxation.  In  his  work  on  "Shifting  and  In- 
cidence of  Taxation,""^   Professor   Seligman  speaks  of  the 


^'^Wilkie  V.  Chicago,   i88  111.  444. 
^  State  V.  Ashbrook,    154  Mo.   375. 


364 


ECONOMICS  OF  RETAILING 


effects  of  the  German  law  in  restricting  competition  and  takes 
the  position  that  such  a  result  would  be  undesirable  in  this 
country. 

Without  special  legislation  there  is  little  hope  for  any 
form  of  regulation  of  retail  businesses.  Courts  have  held  a 
position  quite  consistently  opposed  to  any  interference  of  the 
public  with  ordinary  retail  establishments. 

"It  would  be  illegal  for  a  city  to  create  a  monopoly  by 
granting  an  exclusive  license  to  a  single  party."^* 

'Taxation  cannot  be  used  for  the  purpose  of  building 
up  monopolies.  Taxation  of  business  and  license  taxes  are 
peculiarly  liable  in  this  direction,  especially  if  they  undertake 
to  Hmit  the  number  to  whom  permits  shall  be  given."" 

In  certan  instances,  however,  both  legislatures  and  courts 
have  departed  entirely  from  their  theories  of  free  competition. 
At  one  time  it  was  thought  essential  in  order  to  keep  alive 
competition  among  railways  between  two  points,  to  have  two 
or  more  companies  in  a  municipality  selling  gas,  water,  light, 
telephone,  or  transportation  services.  But  the  wastes  involved 
in  such  competition  have  become  apparent  to  all,  and  these 
now  constitute  exceptions  to  the  rule  of  freedom  in  business. 

Is  Regulation  Necessary?— If  it  could  be  shown  generally 
and  conclusively  that  regulation  of  the  retail  business  would 
be  a  distinct  benefit  to  the  public,  the  first  step  towards  the 
establishment  of  such  a  system  could  soon  be  accomplished. 
But  it  must  be  admitted  that  such  regulation  cannot  at  present 
be  shown  to  be  necessary,  for  the  reason  that  the  evidence, 
even  if  existent,  is  not  available.  Many  think,  or  believe,  or 
feel,  that  such  regulation  would  be  a  benefit,  but  such  thoughts, 
beliefs,  or  feelings  are  not  the  influences  by  which  either 
legislative  or  judicial   opinion  might  or  should  be   swayed. 

="  Pages  361,  362. 

»i^"'T'^^"    ^"'i   English    Encyclopedia   of   Law,"    Vol.    21:784. 
Cooley  on   Taxation,"   Vol.    1:409,   410. 


PUBLIC  REGULATION 


^365 


The  first  step  to  be  taken  in  the  settlement  of  the  problem 
in  either  one  way  or  the  other  would  be  a  thorough  investiga- 
tion of  the  retail  business  by  the  states,  or,  better  still  by  the 
national  government,  to  determine  just  where  and  what  the 
wastes  in  retail  distribution  are.  From  the  information  thus 
gathered,  judgment  could  more  readily  be  passed  as  to  the 
need  of  public  regulation. 

Summary.— In  conclusion,  the  following  points  should  be 
noted : 

First.  If  the  retail  business  is  to  be  regulated,  the  busi- 
ness tax  or  license  system  seems  to  offer  the  simplest  approach 
to  the  matter. 

Second.  A  business  tax  is  an  effective  means  of  securing 
money  for  government  purposes.  There  is  as  much  to 
commend  it  for  this  purpose  as  for  regulation. 

Third.  Judging  from  the  conditions  that  are  apparent  in 
retailing,  it  would  seem  desirable  for  the  public  to  exercise 
some  regulative  power  over  retail  stores.  This  regulation,  if 
widely  applied,  would  be  fully  as  beneficial  to  the  retailers  as 
to  the  public. 

Fourth.  As  a  first  step,  before  any  measures  are  taken 
for  general  regulation  of  any  kind,  a  thorough-going  investi- 
gation is  needed  to  determine  the  exact  character  of  the  prob- 
lems to  be  solved. 

A  Selected  List  of  References  on  Business  Taxation 

Adams,    H.    C.     The    Science   of   Finance.     Pages    377-384.     Hfenry 
Holt  and  Company,  New  York.     1899. 

Bastable,   C.   F.     Public   Finance.     Pages  425-431.     Macmillan    Co., 

New  York.     1895. 
Bullock,   C.   J.     Introduction   to   Economics.     (See   Index   therein.) 

Silver,   Burdett   and   Co.,   New  York   and   Boston.     1908. 
Selected   Readings    in    Public    Finance.     Pages   321-349.     Ginn    and 

Co.,  New  York.     1906. 


366 


ECONOMICS  OF  RETAILING 


Pages  482-484.    University  of 


International  Gonfer- 
Page  275  ff. 
Quarterly  Journal  of 


Cohn,  G.     The  Science  of  Finance. 

Chicago  Press,   Chicago.     1895. 
Cooley.      Treatise    on    the    Law    of    Taxation.      3rd    Edition    (legal 

work).     Chapter  XVIII,  "Taxation  of  Business  and  Privilege." 

Callaghan  and  Co.,  Chicago.     1906. 
Ely,  R.  T.     Outlines  of  Economics.     Pages  648-649.     Macmillan  Co., 

New   York.     1908.     Taxation    in   American    States   and    Cities. 

Pages  203-209  and  280-286. 
Forman,  J.  C.     Business  Assessments  as  a  Substitute  for  the  Per- 
sonal   Property    Tax.     International    Conference   on    State    and 

Local  Taxation,   1908.     Pages  273-283. 
Hart,  W.   O.     License  System  in  Louisiana. 

ence  on  State  and  Local  Taxation,  1909. 
Hill,  J.    A.    Taxes  on    Department    Stores. 

Economics,   15  :299-304. 
Hollander,  J.  H.       Studies  in  State  Taxation,  Vol.  18  in  Johns  Hop- 
kins University  Studies  in  Historical  and  Political  Science: 

Adams,  T.  S.       Maryland,  pages  45-51. 

Barnett,  G.  E.     North  Carolina,  pages  92-97. 

Brough,  C.  H.     Mississippi,  pages  206-212. 

Schmeckelbier,   L.   F.     Georgia,  pages   243-248. 
Millis,  H.  A.     Business  and  Professional  Taxes.     Journal  of  Political 

Economy,   16  176-87. 
Seager,    H.    R.     Principles    of    Economics.     (See    Index    therein.) 

Henry   Holt   and   Co.,    New   York.     1917. 
Seligman,    E.    R.    A.     Shifting  and    Incidence   of   Taxation.     Pages 

338-366.     Lemcke,    Lemcke    and    Buechner,    New    York.     1893. 
Finance  Statistics  of  American  Commonwealths.     American  Statis- 
tical Asso.,  Boston,  Mass.     1889. 
U.  S.  Census,  Special  Reports : 

Wealth,  Debt  and  Taxation.     1907. 

Statistics  of  Cities.     1908.     (Table  35.) 


CHAPTER  XXI 

THE  IDEAL  RETAILING  SYSTEM 

Retailer  Performs  a  Useful  Function. — One  of  the  most 
noteworthy  ideas  that  results  from  a  study  of  the  present  re- 
tailing system  with  all  its  complexities,  is  that  it  is  a  product 
of  an  evolution  extending  back  over  a  great  many  years, 
and  that  during  all  the  intervening  time  there  has  gone  on  a 
steady,    relentless   elimination    of    all    forms   of    distribution 
found  uneconomical.     In  view  of  this,  if  for  no  other  reason, 
it  is  to  be  presumed  that  there  is  a  proper  economic  place 
for  each  form  of  retail  distribution  now  in  existence.     De- 
partment stores,   specialty  stores,  and  mail-order  houses,  all 
perform  economic  functions.     Each  serves  in  a  part  of  the 
field  of  distribution  not  entirely  covered  by  the  other  types  of 
institutions.     So  long  as  the  general  problem  of  distribution 
remains  the  same  as  it  is  at  present,  each  of  these  classes  is 
here  to  stay.     It  is  even  likely  that  new  types  not  yet  developed 
will  also  find  their  way  into  the  system.     The  difficulties  that 
exist  among  them  are  probably  due  to  a  lack  of  adjustment 
of  each  type  to  its  proper  field,  rather  than  to  anything  more 
fundamental.     Much  of  the  friction  may  be  reduced  in  the 
course  of  time. 


Changing  Retail  Methods. — Changes  in  retailing  methods 
must  proceed  slowly,  for  no  change  can  be  made  successfully 
without  the  co-operation,  or  at  least  the  acquiescence,  of  the 
people.  The  people  are  the  final  arbiters,  and  no  system  of 
distribution  can  succeed  unless  the  people  are  in  favor  of  it  in 
both   conscious   thought   and   unconscious   habit.     Whatever 

3^7 


i 


I' 


I 


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368 


ECONOMICS  OF  RETAILING 


there  is  of  value  in  past  experience,  therefore,  should  be  saved 
and  put  to  use  in  present  and  future  practice.  It  is  probable 
that  the  most  substantial  progress  in  retailing  in  the  future 
will  be  the  result  of  gradual  changes,  and  careful  adaptations 
of  one  thing  at  a  time  to  suit  new  needs,  rather  than  the  result 
of  rapid  evolutions  from  old  into  new  and  entirely  untried 
plans. 

Evolution   of  Distributive   Systems.— The    fact  that   the 
present  system  is  a  product  of  evolution  is  presumptive  proof 
that  it  is  far  from  perfect.     Evolutionary  movement  is  always 
preceded  by  necessity.     Conditions  demand   a   readjustment 
long  before  the  readjustment  takes  place,  and  it  is  only  at 
times  that  are  relatively  stable  or  unprogressive  that  it  may 
be  said  that  the  necessary  readjustments  actually  or  approxi- 
mately catch  up  with  the  needs.     Since  the  distributive  sys- 
tem is  conditioned  on  the  one  hand  by  the  methods  of  produc- 
tion, and  on  the  other  by  the  standards  of  living  of  the  con- 
sumers, it  is  only  during    long    periods    of    relatively    fixed 
methods  of  production  and  relatively  fixed  standards  of  living 
that  distributing  systems  work  smoothly  and  satisfactorily. 
But  at  the  present  time,  and  during  the  years  just  passed 
neither  methods  of  production  nor  standards  of  living  have 
been  fixed  or  stable.     Consequently,  the  system  of  distribution 
has  been  and  is  under  the  necessity  of  change.     Not  that  any 
particular  form  of  retailing  is  foreordained  to  succeed  over 
others,  but  the  new  conditions  demand  readjustments  of  some 
kind,  and  those  that  fit  the  conditions  most  adequately  are 
destined  to  the  greatest  development. 

Retailer  as  a  Public  Servant.— There  is  a  demand,  poten- 
tial at  least,  at  the  present  time  for  a  retailing  system  that 
will  supply  each  community  with  what  the  people  want,  in  the 
way  that  they  want  it,  when  they  want  it,  and  at  the  lowest 


THE  IDEAL  RETAILING  SYSTEM 


369 


possible  cost.  What  is  demanded  is  that  the  retailer  and  his 
employees  must  be  whole-hearted  servants  of  the  people. 
Upon  this  ground  only  can  the  retailer's  wage,  called  his  profit, 
be  justified.  Profit  or  wage  of  any  kind  without  service 
in  return  is  graft.  This  is  a  fundamental  principle  to  which 
all  business  must  sooner  or  later  conform. 

The  Salesman's  Duty.— In  an  ideal  system  of  retail  distri- 
bution, the  salesman  must  be  able  to  perform  an  expert  service; 
in  other  words,  the  salesman  must  be  a  specialist  in  his  field. 
It  does  not  seem  too  much  to  say  that  the  grocery  salesman 
must  be  a  food  specialist,  well  versed  in  dietetics,  food  values, 
and  food  preparation.  The  dry-goods  and  clothing  salesman 
must  be  a  textile  and  style  expert.  The  shoe  salesman  must  be 
a  specialist  on  fitting  feet  for  comfort,  for  service,  and  for 
appearance. 

Proper  Store  Equipment.— The  store  equipment  must  be 
such  as  to  facilitate  the  best  service,  and  by  best  service  is 
meant  speed,  cleanliness,  correct  weights  and  measures,  the 
saving  of  labor,  and  the  elimination  of  leaks  and  wastes. 
People  are  coming  to  expect  that  the  corner  grocer  shall  not 
only  be  honest  and  intelligent  concerning  his  goods,  but  that  he 
shall  make  his  place  of  business  accord  with  the  best  standards 
of  the  community  as  to  architecture  and  sanitary  arrangements. 
Light,  air,  and  cleanliness  are  modern  demands  for  every 
structure  used  by  people  and  must  not  be  neglected  by  modern 
store  owners.  Fixtures  that  are  not  only  useful  in  every 
way  but  also  artistically  appropriate  in  line  and  design  add 
to  the  customer's  satisfaction. 

Protecting  the  Customer.— Either  every  store  should  have 
its  own  laboratory  or  testing  room  with  full  equipment  for 
making  tests  of  all  goods  handled,  so    that  what  is  told  the 


) 


4 


m 


370 


ECONOMICS  OF  RETAILING 


customers  about  the  goods  may  be  the  results  of  personal  ob- 
servation or  knowledge;  or  such  a  laboratory  should  be  sup- 
plied by  each  municipality  in  which  the  necessary  tests  could 
be  made  for  all  stores.  Every  salesman  should  be  well  versed 
in  all  known  tests  which  are  applicable  to  his  particular  line  of 
business. 

The  interest  of  the  public  in  the  distribution  of  goods  is 
such  that  a  certain  amount  of  supervision  and  regulation 
seems  necessary,  as  for  example,  the  setting  of  standards 
for,  and  the  inspection  of  foods,  drugs,  food  stores,  weights 
and  measures,  and  so  on.  In  some  states  legislation  has  been 
specifically  enacted  against  untruthful  advertising.  Such  laws 
seem  desirable,  and  it  is  probable  that  other  states  will  take 
similar  action.  The  rule  "caveat  emptor"  is  passing.  In  its 
stead  the  seller  is  coming  to  be  held  responsible  for  all  of  his 
statements.  Competition  forces  this  in  the  long  run,  but  the 
difficulty  arises  with  short-sighted  dealers  and  with  fly-by- 
night  concerns  that  expect  to  sell  a  customer  only  once.  Dis- 
honesty in  such  quarters  must  be  checked,  and  to  this  end, 
a  good  "truthful-advertising  law"  will  be  found  to  be  most 
efficacious. 

The  administration,  or  the  responsibility  for  the  adminis- 
tration, of  such  a  law  should  rest  with  the  retailers  themselves. 
No  one  is  hurt  by  dishonest  advertising  any  more  than  the 
dealer  who  is  trying  to  do  business  on  honest  lines,  and  who 
hopes  for  continued  patronage  from  the  same  customers.  Re- 
tailers as  a  class  would  be  more  interested  to  see  such  laws 
carefully  enforced  than  any  other  group  of  citizens.  In  the 
matter  of  truthful  advertising  as  well  as  in  every  other  re- 
form, the  motive  for  progress  should  come  from  within  the 
group  rather  than  from  without.  Supported  by  the  good 
opinion  of  the  more  influential  members  of  the  group  of  re- 
tailers, the  law  will  be  effectually  observed.  Without  this 
support,  it  is  likely  to  be  evaded  if  not  neglected  entirely. 


THE  IDEAL  RETAILING  SYSTEM 


371 


Legal  Objections  to  Licensing.— It  has  been  proposed  in 
vrarious  quarters  that  retailers  should  be  licensed,  their  num- 
bers regulated,  and  their  standards  defined  publicly.     There 
are  many  legal  objections  to  such  a  course  and  no  precedents 
exist  for  such  a  regulation  of  ordinary  retail  businesses  in  this 
country.     Aside  from  the  practical  difficulties  of  carrying  out 
such  a  plan,  there  is  not  yet  a  sufficient  amount  of  general 
knowledge  about  the  problems  of  retail  distribution  to  warrant 
the.  public  in  taking  a  decided  stand  upon  any  point  that 
might  be  affected  by  regulation.  Obviously  the  public  should 
know  where  it  is  going  before  it  starts.     Regulation  may  be 
very  desirable,  and  undoubtedly  is,  but  at  the  present  stage 
of  our  knowledge  about  the  work  of  retailing,  it  is  far  from 
clear  that  any  satisfactory  method  of    regulation  could    be 
devised  without  a  great  many  preliminary  trials  and  errors. 
The  problems  of  distribution  are  too  big  and  too  complex 
to  be  solved  by  simple  formulas.     Unless  wisely  administered, 
public  regulation   would  be   as   likely  to   prove  harmful   as 
helpful.     Establishing  regulation  without  sufficient  prelimin- 
ary, impartial  investigation  might  result  in  too  expensive  ex- 
perimentation. 

The  Rise  of  the  Chain  Store.— As  has  been  pointed  out  in 
a  preceding  chapter,  there  has  been  a  decidedly  great  develop- 
ment of  chain  stores  of  various  kinds  in  this  country  during 
the  last  score  of  years.  A  number  of  these  chain  systems  have 
been  established  solely  because  of  friction  in  the  regular  chan- 
nels of  distribution.  Manufacturers  who  have  had  trouble 
with  retailers  and  jobbers  over  such  problems  as  price-cutting, 
substitution,  and  refusals  to  handle  the  goods  at  all,  have  felt 
obliged  to  establish  outlets  of  their  own.  Thus,  there  have 
grown  up  in  this  country,  as  well  as  in  the  European  countries, 
a  number  of  manufacturers'  and  jobbers'  chain-store  systems, 
of  exclusive  agencies,  of  *'tied  shops,"  and  of  various  other 


I 

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ECONOMICS  OF  RETAILING 


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complex  arrangements  in  which  the  distribution  of  goods  from 
the  producers  to  the  consumers  is  carried  out  of  its  regular 
channels.  If  occasion  for  such  friction  is  to  continue,  it 
seems  certain  that  these  independent  and  special  distributive 
agencies  must  multiply.  It  is  even  possible  that  in  the  course 
of  time  these  special  agencies  may  take  the  place  of  the  regular 
stores  entirely. 

Multiplication  of  Special  Agencies  Undesirable.— What- 
ever the  future  may  bring,  it  does  not  seem  that  this  develop- 
ment of  multitudes  of  special  distributive  systems  is  to  be 
desired.  In  the  first  place,  the  most  obvious  result  is  a  dupli- 
cation of  distributive  agencies  that  are  already  in  existence. 
In  so  far  as  the  present  agencies  are  inadequate  to  handle  any 
given  type  of  business,  the  establishment  of  the  special  type 
is  socially  justifiable.  But  where  the  special  distributive  sys- 
tem is  established  in  the  face  of  the  fact  that  present  systems 
are  quite  suflficient,  one  may  well  pause  before  giving  an  un- 
qualified approval.  Such  duplication  means  waste  that  in 
many  cases  consumes  all,  and  more  than  all,  of  the  gains  made 
through  the  new  arrangement.  Wealth  dissipated  in  dupli- 
cating distributive  systems  already  in  existence  is  lost  not 
only  to  the  individual  who  advances  it,  but  also  to  society; 
since  if  it  were  otherwise  productively  employed  there  would 
be  an  increase  of  useful  products  or  services  for  society. 

A  second  reason  for  doubting  the  good  of  the  movement 
towards  chain  stores  and  other  special  distributive  agencies 
is  that  such  systems,  although  established  in  many  cases  in 
self-defense,  have  a  tendency  after  they  reach  large  propor- 
tions to  become  aggressive,  to  dominate  the  retail  markets,  to 
drive  smaller  concerns  out  of  business,  and  in  short,  to  do  in 
the  field  of  distribution  what  the  great  trusts  have  done  in 
certain  productive  industries. 

The  former,  a  duplication  of  existing  distributive  systems. 


THE  IDEAL  RETAILING  SYSTEM 


373 


constitutes  social  waste ;  the  latter,  a  tendency  to  gain  control 
of  large  sections  of  the  retail  business,  is  a  menace.  But 
present  conditions  of  retail  trade  encourage  the  organization 
and  development  of  just  such  special  systems.  Until  some- 
thing shall  have  been  done  to  eliminate  the  friction  now  so 
common  between  producers  and  distributors,  the  present  ten- 
dency towards  large  and  special  retailing  aggregations  must  go 
on.  The  remedy,  if  such  it  may  be  called,  is  to  remove  the 
causes  of  friction. 


I. 


2. 


The  Remedy— If  a  remedy  is  to  be  applied,  it  would  seem 
wise,  in  view  of  our  experience  with  the  great  industrial 
trusts,  to  apply  it  now  as  a  preventive  rather  than  wait  until 
the  development  has  gone  on  so  far  as  to  demand  a  cure. 

The  greatest  causes  of  friction  between  producers  and 
retailers  at  the  present  time  are  as  follows : 

Price   discriminations,    in   which   some    dealers    are 

favored  at  the  expense  of  others. 
Price-cutting  on  standard  goods  resulting  in  injury 

to  the  producer's  markets. 
3.     The  dif^culty  producers  experience  in  getting  and 

keeping  their  goods   in  the   hands   of   dealers   so 

that  they  may  be  obtained  by  the  consumers. 

The  first  steps  aimed  at  reducing  such  friction  must  seek 
to  prevent  unfair  price-discriminations  between  buyers,  and 
must  grant  to  the  producer,  who  desires  to  make  a  stand- 
ardized article,  the  right  to  name  the  prices  at  which  it  is 
to  be  sold  by  all  dealers.  The  elimination  of  the  system  of 
granting  price  favors  to  "preferred  customers"  and  of  un- 
authorized price-cutting  of  standard  goods,  would  go  far 
towards  removing  many  of  the  present  serious  causes  of 
controversy. 

The  third  great  source  of  friction  in  the  distributive  ma- 


374 


ECONOMICS  OF  RETAILING 


chine,  mentioned  above,  is  the  difficulty  experienced  by  pro- 
ducers in  getting  their  goods  into  the  hands  of  retailers  and 
in  keeping  them  there.  The  expense  for  traveling  men  and 
for  advertising  campaigns  that  have  for  their  sole  purpose 
the  cultivation  of  trade  relations  with  dealers,  getting  trade 
away  from  other  concerns,  and  preventing  other  concerns  from 
retaliating,  is  enormous.  Under  present  methods  of  competi- 
tion this  waste  seems  unavoidable.  Business  men  everywhere 
frankly  admit  that  this  is  one  of  the  big  problems  of  present- 
day  industry.  Into  this  competition  all  the  forces  of  busi- 
ness are  brought  into  play.  Far  from  stopping  with  perfect- 
ing the  character  of  the  goods  offered  for  sale,  or  reducing 
the  price  to  the  lowest  possible  point  to  secure  markets  through 
the  regular  channels,  much  baser  methods  amounting  virtually 
to  bribery  and  graft  are  often  resorted  to.  To  reduce  the 
friction  arising  from  these  causes  something  must  be  done 
to  open  the  regular  distributive  channels  to  all  producers  on 
the  same  terms. 

Admission  of  All  Products. — It  does  not  seem  beyond  the 
bounds  of  practical  thinking  to  suggest  that  all  dealers  in  a 
certain  class  of  goods  should  be  required  to  admit  to  their 
stores  the  products  of  all  manufacturers  or  jobbers  who  might 
desire  to  employ  their  services  upon  being  guaranteed  a  rea- 
sonable, fair  remuneration  therefor. 

This  plan  might  be  entirely  impracticable  in  some  lines. 
But  among  the  specialties  in  groceries,  dry-goods,  drugs,  and 
hardware,  certainly  much  waste  could  be  eliminated  if  the 
manufacturer  could  freely  send  a  sample  or  a  small  lot  of  his 
goods  to  the  retailer  together  with  his  guarantee  to  pay  the  re- 
tailer for  his  expense  for  a  given  period  of  time,  whether  sales 
were  made  or  not.  The  retailer  would  then  serve  the  manufac- 
turer, or  the  producer,  in  much  the  same  capacity  and  under 
the  same  principle  as  the  transportation  companies  now  serve 


THE  IDEAL  RETAILING  SYSTEM 


375 


shippers.  Each  manufacturer  would  at  least  get  a  chance  to 
have  his  goods  displayed  where  customers  are,  just  as  shippers 
are  now  all  given  the  privilege  of  having  their  goods  trans- 
ported. 

This  plan  would  mean  a  great  saving  to  the  manufacturer 
in  selling  and  advertising  expense.  The  problem  of  the  man- 
ufacturer under  this  plan  would  not  be  how  to  get  retail 
dealers  to  agree  to  take  his  goods,  or  how  to  keep  their  cus- 
tom after  they  had  once  begun  to  order,  that  is,  to  keep  other 
manufacturers  from  taking  the  trade  away;  but  the  prob- 
lem would  be  how  to  make  the  goods  so  attractive  in  quality, 
appearance,  and  price  as  to  cause  them  to  be  sold  to  consumers 
in  competition  with  other  like  goods  from  other  producers,  all 
on  the  same  counter,  or  in  the  same  show  case.  The  real  de- 
mand for  an  article  could  soon  be  determined  by  this  method 
and  at  much  less  expense  for  most  goods  than  by  sending 
out  traveling  salesmen  and  spending  large  sums  on  adver- 
tising. There  would  still  be  some  need  for  commercial  trav- 
elers and  certainly  for  advertising,  but  both  forms  of  sales 
promotion  would  become  very  much  more  effective  than  at 
present. 


New  Retailing  Problems.— The  retailer  would  be  con- 
fronted by  a  number  of  problems  quite  different  from  those 
he  has  to  meet  now.  One  of  these  would  be  to  provide  suit- 
able space  for  all  of  the  goods  that  might  be  sent  to  him  by 
producers.  But  since  the  retailer  would  be  paid  for  his  serv- 
ice, including  rent  for  the  space  occupied  by  the  goods,  it 
does  not  seem  that  the  problem  would  prove  unsolvable. 
There  would  also  be  difficulty,  though  not  insurmountable,  in 
providing  fair  display  space  and  prorating  the  various  rental 
charges  for  the  various  classes  of  goods  consigned  to  the 
store.  The  capital  of  a  dealer  would  be  his  store  room,  fix- 
tures, and  equipment.     The  risks  of  marketing  would    fall 


I 

I 


!  4* 


il 


Z7^ 


ECONOMICS  OF  RETAILING 


where  they  belong — on  the  producer.  Accumulation  of  dead 
or  unsalable  stock  in  any  community  could  be  obviated  by 
this  method  of  distribution.  Goods  not  sold  within  a  certain 
time  could  simply  be  returned  to  the  manufacturer  or  sent 
on  his  order  to  some  other  store  where  sales  of  such  goods 
were  being  made. 

Benefit  to  Consumer. — The  consumer  would  be  benefited 
most  of  all.  In  the  first  place,  the  emphasis  in  competition 
would  be  placed  by  the  manufacturer  on  getting  the  consumer's 
trade  rather  than  as  now  on  getting  the  retailer's  trade.  To 
get  the  consumer  to  buy,  quality  and  price  would  become  pre- 
eminent considerations.  In  the  second  place,  it  seems  quite 
likely  that  the  consumer  would  have  a  larger  variety  of  goods 
to  select  from,  so  that  wants  could  be  more  fully  and  specifi- 
cally satisfied.  In  the  third  place,  many  more  kinds  of  goods 
would  reach  the  consumers  than  is  now  the  case;  for  now 
many  valuable  inventions  are  probably  never  marketed  be- 
cause their  promoters  are  unable  to  satisfy  the  demands  of 
jobbers  or  other  dealers  who  control  the  outlets. 

Advantages  and  Disadvantages  of  Method. — It  might  be 
urged  that  this  method  would  tie  up  much  of  the  manufac- 
turer's capital  in  goods  consigned  to  dealers.  This  is 
true,  and  it  is  not  to  be  expected  that  every  manufacturer  could 
effect  national  distribution  at  once.  It  is  obvious,  however, 
that  the  plan  proposed  has  many  advantages  for  the  manu- 
facturer. Advertising  and,  distribution  could  be  perfectly 
correlated  by  taking  one  community  at  a  time.  Goods  dis- 
tributed nationally  could  be  advertised  through  national 
mediums,  while  the  goods  distributed  through  certain  parti- 
cular sections  could  be  advertised  in  those  sections  only.  Many 
other  possibilities  of  this  plan  will  suggest  themselves  to  the 
reader. 


THE  IDEAL  RETAILING  SYSTEM 


VJ7 


Three  Necessary  Reforms.— Prevention  of  unfair  price- 
discrimination,  permitting  price-maintenance  under  careful 
supervision,  and  opening  the  retail  markets  to  all  producers — 
these  three  reforms  in  business  would  result  in  raising  it  to  a 
plane  where  workmanship  and  efficiency  rather  than  subtlety, 
crafty  bargaining,  and  force  count  for  success.  Under  these 
three  policies  there  would  be  no  object  in  creating  chain  sys- 
tems or  in  organizing  any  form  of  combination  other  than 
for  purposes  of  reducing  the  expenses  of  handling.  Eliminate 
the  inside-price-buying  system  and  the  price-cutting  system  in 
selling  and  you  eliminate  bases  upon  which  stand  all  marketing 
monopolies. 

Trusts. — The  great  power  of  a  modern  trust,  whether  it 
be  in  the  field  of  distribution  or  of  production,  lies  either  in 
its  ability  to  buy  for  less,  to  sell  for  more,  or  to  do  its  work 
at  a  lower  expense  than  its  competitors.  Its  buying  for  less 
amounts  to  no  advantage  unless  the  price  is  much  less  propor- 
tionately than  that  paid  by  other  competitors.  Such  a  difference 
constitutes  unfair  discrimination.  The  trust  can  sell  for  more 
only  when  it  has  a  monopoly — when  its  competitors  have  been 
wiped  out  of  the  market.  But  the  usual  method  adopted  by 
the  trusts  to  get  rid  of  competitors  is  by  underselling  them  in 
one  place  or  in  one  line  at  a  time,  while  making  up  these  losses 
by  sales  in  other  places  or  other  lines.  Price-maintenance  is, 
at  least,  a  partial,  if  not  a  complete,  remedy  for  this  in  the 
retail  trade. 

In  so  far,  and  wherever  the  trust  succeeds  in  actually  re- 
ducing the  expenses  of  production  or  distribution,  at  the 
same  time  giving  the  service  that  the  public  desires,  it  is  to  be 
commended  and  encouraged  as  against  less  efficient  concerns. 
But  in  all  recent  trust  investigations,  the  economies  of  produc- 
tion and  distribution  gained  by  organization  have  been  largely 
incidental  and  insignificant  compared  with  the  power  it  has 


i 


It  ? 


378 


ECONOMICS  OF  RETAILING 


given  to  buy  for  less,  and  sell  for  more  than  competitors,  and 
by  these  processes  frequently  to  put  competitors  out  of  business 
altogether. 

Checking  the  Trust  Evil.— If  the  public  really  wishes  to 
check  the  evils  of  trust  development,  the  means  in  general 
outline  are  clear.  Simply  prevent  unfair  price-discrimination. 
In  other  words,  compel  all  sellers  to  sell  to  all  buyers  who 
apply  on  equivalent  terms,  and  thereby  prevent  cut-throat  com- 
petition, that  is,  price-cutting  that  goes  below  the  legitimate 
costs  of  production  and  distribution.  As  for  the  rest,  under 
these  conditions,  let  the  best  man  win.  The  concern  with  the 
best  system  and  the  lowest  costs  will  succeed,  as  it  should, 
combination  will  be  made,  not  for  industrial  and  commercial 
warfare,  but  for  efficiency,  if  at  all. 

The  P.  A.  T.  A. — Where  governments  do  not  interfere  with 
these  tendencies  of  present-day  competition  and  its  frictions, 
business  concerns  themselves  are  forced  to  combine  into  or- 
ganizations having  for  their  purpose  the  regulation  of  trade 
abuses.  Something  has  already  been  accomplished  in  this 
country  through  ''the  trade  relations  committees"  of  the  great 
dealers'  associations,  but  in  this  respect  American  business 
men  are  much  behind  those  of  Europe.  The  Proprietary  Ar- 
ticles Trade  Association  of  England  is  a  good  example.  The 
"P.  A.  T.  A.,"  as  it  is  called,  is  made  up  of  manufacturers, 
jobbers,  and  the  majority  of  retailers  of  the  country.  Agree- 
ments are  reached  as  to  both  retail  and  wholesale  prices,  thus 
settling  both  the  quantity-discount  and  price-maintenance 
questions.  Any  manufacturer  or  jobber  who  transgresses  the 
rules  established  by  agreement  by  giving  inside  prices  to  any 
buyer  is  immediately  expelled,  the  prices  on  his  goods  are 
generally  cut  thereafter  by  all  dealers,  the  stock  in  the  hands 
of  the  dealers  is  disposed  of  and  is  thereafter  ordered  only 


THE  IDEAL  RETAILING  SYSTEM 


379 


upon  request  of  consumers.     Retailers  who  cut  prices  set  by 
the  P.  A.  T.  A.  are  likewise  summarily  treated.^ 

It  is  possible  that  the  conditions  of  American  retail  trade 
that  are  now  so  troublesome  will  in  the  future  be  eliminated 
or  avoided  by  plans  such  as  these.  But  there  is  always  a  ten- 
dency when  an  organization  such  as  the  P.  A.  T.  A.  becomes 
large  and  effective,  to  go  farther  than  merely  correct  the 
abuses  existing  within  and  to  lay  tribute  upon  the  consumer. 
In  other  cases,  the  members  of  such  organizations  become 
unprogressive  and  assume  an  unnecessary  enmity  towards  all 
improvements.  In  view  of  these  tendencies,  such  associa- 
tions need  the  corrective  balance  of  the  one  other  party  in- 
terested in  their  work — namely,  the  consumer.  Hence  there 
is  needed  the  supervision  of  the  public. 

Extent  of  Government  Regulation. — How  far  government 
supervision  and  regulation  over  the  retail  trade  will  be 
carried  remains  to  be  seen.  One  can  well  adopt  Spencer's 
dictum  that  the  government  that  governs  least  is  the  best,  and 
that  the  responsibility  of  working  out  its  own  destiny  should 
be  left  as  largely  as  possible  to  each  class  of  business.  It  i^ 
only  when  one  group  threatens  the  existence  of  others  and 
offers  no  ultimate  advantage  to  the  consumer,  that  the  spirit 
of  fair  play  must  be  invoked  through  the  agency  of  govern- 
ment and  the  offenders  made  to  employ  fair  methods. 

Value  of  Statistics. — One  thing  that  the  public  can  and 
should  do  for  distribution  is  to  collect  statistics  that  will  give 
an  accurate,  quantitative  idea  of  the  extent  of  the  business,  the 
different  types  of  retail  organizations,  the  expenses  of  selling 
in  each,  the  amount  of  business  done,  the  amounts  of  capital  in- 
vested, the  character  of  retail  store  ownership,  the  relations  of 
retail  stores  to  jobbers  and  manufacturers,  the  number  and 


^Printer's  Ink,  April  2,  1914,  page  64. 


11 


II  ■ 


m 


#1 


380 


ECONOMICS  OF  RETAILING 


kinds  of  employees  and  their  wages  and  salaries,  the  extent  of 
the  credit  business,  the  costs  of  delivery,  the  tendencies  in  con- 
sumer demands,  and  many  more  important  matters  necessary 
to  forming  correct  judgments  concerning  the  retail  business. 
By  means  of  the  Federal  and  State  Censuses,  and  through 
the  work  of  other  government  departments  and  bureaus,  the 
nation  is  gradually  coming  into  possession  of  a  fair  knowledge 
of  the  problem  of  the  production  of  raw  materials,  of  trans- 
portation,  and   of   manufactures.     In   the   newly  established 
Office  of  Markets  in  the  Department  of  Agriculture,  the  dis- 
tribution of  agricultural  products  is  to  be  studied.     Except  for 
this  beginning,  important  as  it  is,  and  covering  but  a  single 
section  of  the  big  field  of  goods  distribution,  nothing  has  been 
done  by  any  department  of  government  to  determine  the  de- 
gree of  our  nation's  efficiency  in  its  commerce  and  trade.     Of 
all  the  states,  Massachusetts  has  taken  the  first  and  only  census 
of  trade."     Even  that  was  meagre  in  detail.     It  seems  strange 
that  great  sums  of  public  money  should  be  given  to  the  study 
and   promotion   of  better  methods   of   production,    and   that 
nothing  should  be  done  to  determine  better  standards  of  ef- 
ficiency  in   distribution,   especially  when   one   considers   that 
the  costs  of  distribution  are  nearly  equal  to  those  of  pro- 
duction.    Investigations  made  so  far  in  the  field  of  retailing 
are  mere  samplings,  and  the  judgments  passed  are  but  little 
more  than  guesses.     The  demand  for  census-taking  and  in- 
vestigation in  the  distributive  business  is  one  that  the  gov- 
ernment should  neglect  no  longer. 

Progress  Through  Scientific  Study.— It  is  probable  that 
the  greatest  progress  to  come  in  retailing  will  not  result  from 
any  readjustment  brought  about  by  public  action,  though  this 
may  be  a  necessary  part  of  its  evolution,  but  rather  from  a 
scientific  study  of  the  problem  of  distributing  goods  made 

2  In   1905. 


THE  IDEAL  RETAILING  SYSTEM 


381 


by  retailers  and  their  salespeople  themselves.  The  costs  of 
distribution  are  admittedly  too  high  at  present  for  the  services 
performed.  If  these  costs  could  be  generally  reduced,  for 
example,  as  much  as  2  per  cent,  it  would  mean  a  saving  of 
from  $200,000,000  to  $300,000,000  annually  to  the  United 
States  alone.  This  saving  would  first  take  the  form  of  added 
profits  to  the  distributors  but  ultimately  would  go  to  the 
consumers  as  a  whole.  But  2  per  cent  is  a  very  conservative 
estimate  of  reductions  that  may  be  made  when  those  engaged 
in  the  business  shall  have  been  properly  educated  for  their 
work.  It  may  not  be  too  much  to  say  that  savings  of  twice 
or  even  three  times  this  amount  are  possible. 

There  is  no  reason  why  scientific  study  and  education 
should  not  do  for  distribution  what  it  is  doing  for  agriculture. 
Like  agricultural  education,  the  education  for  retailers  and 
their  salespeople  must  be  widely  diffused  in  order  that  society 
may  make  appreciable  gains.  Every  store  worker  must  share 
in  this  training.  Progress  towards  more  economical  and  bet- 
ter retailing  can  come  only  by  slow  degrees,  and  by  improve- 
ment of  one  thing  at  a  time.  For  the  best  scientific  results, 
there  must  be  co-operation  of  the  schools  and  the  public  with 
the  retailers.  One  of  the  most  vital  effects  to  be  hoped  from 
a  proper  training  of  retailers  is  that  they  may  in  turn  help  con- 
sumers to  become  rational  in  their  demands  and  wiser  in  their 
purchases  and  consumption. 

Some  reforms  are  necessary  in  present-day  business 
methods.  A  clear  understanding  of  the  evils  that  exist  and 
their  causes  will  go  far  towards  prompting  business  men 
to  take  steps  of  their  own  accord  to  eliminate  them.  There 
is  a  demand  that  business  education  should  be  offered  by 
the  public  schools.  The  purpose  of  such  education  would  be 
to  point  out  the  ways  in  which  business  might  be  successfully 
conducted.  If  present-day  business  practice  alone  were  to 
serve  as  the  lesson  to  be  studied,  the  schools  would  have  to 


m-^-r^'ii  ^1  r-^''ii 


>liy,ll>lH"..,J>JHf,|l  HI  Jl  frJ^^W^g^ 


1 1 


I  ^ 


1 4 

1 1  I 


382 


ECONOMICS  OF  RETAILING 


countenance  some  methods  that  are  expedient  rather  than 
right.  This  proceeding  would  justly  be  met  by  public  criticism. 
Business  education  must  come,  but,  as  an  accompaniment, 
business  must  be  made  fit  to  teach.  Machiavellian  training 
has  no  place  in  a  public  educational  system.  Tlius  the  com- 
ing of  science  and  education  into  distribution  will  help  to  ac- 
complish what  all  business  men  of  high  principle  and  broad 
vision  desire  to  see,  efficiency  and  honesty  of  performance 
in  this  great  and  useful  work. 


APPENDIX  A 

DISTRIBUTION  OF  FAMILY  EXPENDITURES' 

Ernest  Engel  (1821-96),  while  at  the  head  of  the  Statistical 
Bureau  of  Saxony,  conducted  extensive  investigations  of  work- 
ingmen's  budgets.  As  a  result  of  these  studies  he  formulated  tables 
that  have  become  classical. 

Expenditures,  by  Income  Groups  and  Percentages 
(Engel's  Table  for  Saxony,  1857) 

Annual  Incomes 

Items  of  Expenditure        $225-$3oo    $45o-$6oo    $75o-$i,ooo 

Subsistence  62.00%  55.00%  50.00% 

Clothing 16.00  18.00  18.00 

Lodging 12.00  12.00  12.00 

Fuel  and  light 5.00  5.00  5.00 

95.00%  90.00%  85.00% 

Education,  church,  etc 2.00%  3.50%  5.50% 

Legal  protection  i.oo  2.00  3.00 

Care  of  health i.oo  2.00  3.00 

Comfort     (mental     and     bodily 

recreation)     i.oo  2.50  3.50 

5.00%  10.00%  15.00% 

From  these  tables  Mr.  Engel  propounded  four  economic  laws  that 
are  as   follows: 

First.  That  the  greater  the  income,  the  smaller  the  percentage  of 
outlay  for  subsistence. 

Second.  The  percentage  of  outlay  for  clothing  is  approximately 
the   same,   whatever   the   income. 

Third.  The  percentage  for  lodging  or  rent  and  for  fuel  and  light 
is  approximately  the  same,  whatever  the  income. 

Fourth.  As  the  income  increases  in  amount  the  percentage  of 
outlay  for  sundries  becomes  greater. 

*  Quoted  from  Massachusetts  Cost  of  Living  Commission's  Report.  1910 

383 


I, 


I  i 


i»     ..li' 


384 


ECONOMICS  OF  RETAILING 


Comparison  of  Five  Investi 
Percentages  of  Expendi 


Rent 

Fuel  and  Light 

I 

s  f^ 

3     '-' 

1 

S  f^l 

3  t:^ 

B 

0  0\ 

Soo 

B 

Soo 

0 

U    "-• 

Ui    "-I 

0 

U.    1-" 

u  -' 

u 

3    . 

3     . 

u 

3       . 

:3    . 

c 

CQjD 

PQ  j3 

c 

PQ^' 

mj2 

Income 

53 

v>   0 

rt 

a 

c 

(n  0 

rt 

CTJ 

0. 

Home 
miss 

^ 

C/i'-J 

in^ 

ex 

B  '^ 

0 

c/i^ 

c/i^ 

Cha 

0 

«-M 

Ml 

u 

0  C 

0 

Ml 

Ml 

Under  $200 

•  •  •  • 

•  •   •  • 

16.9 

15.4 

•    •    •    • 

•    •    •    • 

7.8 

8.0 

$   200  to  $   300. . 

•  •  •  ■ 

•  •   • 

• 

•  ■  •  • 

18.0 

14.6 

•    •    • 

. 

•  •   •  • 

•    •    •    ■ 

7.1 

7.4 

300  to       400. . 

•  •   •  • 

•  •   • 

• 

30.5 

18.6 

14.9 

•    •    • 

. 

•  •  •  • 

6.5 

7.0 

6.9 

400  to       500 . . 

26.8 

•   •  4 

• 

25.9 

18.5 

15.2 

5- 

6 

•  •  •  • 

6.2 

6.6 

b.5 

500  to       600. . 

25.9 

17 

5 

22.4 

18.4 

15.  I 

5. 

9 

5.4 

6.0 

6.1 

6.5 

600  to       700 . . 

23.6 

17 

I 

21.7 

18.4 

15.5 

5. 

8 

4.8 

5.7 

5.7 

5-7 

700  to       800 . . 

21.9 

15 

6 

21.2 

18.  I 

15.6 

5 

0 

4.8 

6.4 

5.2 

5-2 

800  to       900 . . 

20.7 

13 

3 

18.6 

17.0 

16.0 

5 

0 

4-3 

5-4 

4.9 

51 

900  to     1,000. . 

19.0 

13 

6 

17.6 

17.5 

14.9 

5 

I 

4.0 

4.8 

4-9 

4.7 

1,000  to     1,100. . 

18. 1 

10 

9 

17.3 

17.5 

15.  I 

4 

5 

3-3 

4.5 

4.8 

4-4 

1,100  to     1,200. . 

16.2 

•    • 

,  • 

•  •  •  • 

16.5 

12.2 

3 

.8 

•  •   •  ■ 

•  ■  •  • 

4.6 

3.8 

1,200  to     1,300. . 

19.8 

•    • 

.  , 

•  •  •  « 

17.4 

12.5 

3 

.8 

•  •  •  • 

•  •  •  • 

4.9 

2.9 

1,300  to     1,400. . 

16.8 

•    • 

•  • 

18.0 

•    •    •    • 

•    •    •    • 

3 

.6 

•  •  •  • 

4.5 

•  •  •  • 

•  •  •  • 

1,400  to     1.^00.  . 

1,500  and  over. 

16.3 

15 

.3 

16.2 

•    ft* 

1 

•    •    •    • 

4 

.1 

2.7 

3-2 

•  •  •  • 

•  •  •  • 

Let  us  now  take  the  results  of  a  number  of  investigations,  and 
test  them  by  Engel's  laws.  The  investigations  here  selected  for 
this  comparison  are  chosen  either  because  based  on  the  study  of  large 
numbers  of  families  or  because  they  are  comparatively  recent.  They 
are  as   follows: 

Investigation  of  cost  of  living  of  workingmen  in  textile  and  glass 
industries,  made  by  the  United  States  Bureau  of  Labor  in  1891. 
Total  number  of  budgets,  5,284. 

Investigation  of  cost  of  living,  made  by  the  United  States  Bureau 
of  Labor  in  1903.  The  investigation  was  based  upon  the  study  of 
25,440   family  budgets. 

Investigation  of  wage  earners'  budgets  in  New  York,  made  in 
1905  by  Mrs.  Louise  B.  More  of  Greenwich  House.  This  investiga- 
tion was  an  intimate  study  of  200  families  on  the  lower  west  side  of 
New  York  City. 


APPENDIX 


385 


CATIONS  OF  Family  Budgets 
TURES^  BY  Income  Groups 


Clothing 


a, 

a: 
U 


B 

o 

U 


B.^ 


t-l 

o 


5  ro     :3   1 

Oj  On     oj  00 


Food 


0 


B 

o 

U 

p 
o' 


3   CO 

<U  Cn 

u  *-> 


(u  00 
a 


Sundries 


1 

0  <^- 

B 

0 

u 

3    , 

(-1 

m.o 

c 

c«    0 

aj 

'5- 

d 
U 

Home 
miss 

0 

U.  s. 

of  L 

Soo 
pq.d 


^ 


13.0 
12.4 
12.9 

13.4 
14.0 

14.6 
15-5 
14.9 
15.2 

137 


16.8 


9.9 
10.5 
II. I 

II. 5 
II. 7 
II. 5 


10.2 


7.3 
9-3 
8.5 
9.0 

2.2 

10.3 

9-4 
10.8 


11.3 


16.6 


8.6 

8.6 

10.21 

II. 3 
II. 9 
12.8 
13.5 
13-5 

14.3 
15.0 

14.8 
15.7 


2.8 
4.3 
4-4 
4-3 

.T.2 


5. 

6. 

7.5 
6.5 
5.7 


40 
44 
44 
45 
44 
44 
44 
45 
45 
43 


36.8 


43.:) 
41.4 
40.2 
41.9 
38.4 
33-3 


21.0 


44. 
44- 
50. 

45. 
44. 

45. 
45- 
43- 


39.5 


35.8 


50.8 

47.3 
48.0 

46.8 
46.1 

43-4 
41.4 
41-3 
39.9 
38.7 
37.6 

36.4 


49 
44 
45 
45 
43 
41 
38 
38 
34 
34 
30 
28 


13.8 
II. 4 

13. 1 
14. 1 

16.0 

16.6 

17. 1 

19-5 
16.2 

22.3 


26.0 


21.0 

22.5 
21 .9 
27.1 

23-3 
24.2 


25.1 


II. 5 
14.2 
13.0 
18.2 
19.0 

19.9 
22.4 

23.8 


26.7 


28.2 


15. 

18. 
16. 
16. 

I/- 
19. 
21. 

23. 
23- 

23- 

26. 

25. 


13.9 

19.2 

18.2 
18.6 
19. 1 

21.5 
23.8 

25.4 

29.1 

28.1 

3^-7 
40.0 


Investigation  of  the  standard  of  living  among  workingmen's 
families  in  New  York  City  in  1907,  by  Robert  Coit  Chapin,  under  the 
auspices  of  the  New  York  State  Conference  of  Charities  and  Cor- 
rection and  the  Russell  Sage  Foundation.  This  was  an  intensive  study 
of  391   families. 

Investigation  of  the  Homestead  Commission  in  Washington, 
D.  C,  made  in  1907,  and  based  upon  the  budgets  of  2,078  families. 

The  accompanying  table  enables  us  to  compare  the  results  of  these 
five  investigations.  It  gives  the  percentage  of  expenditure  for  va- 
rious purposes  by  classified  incomes. 

In  the  case  of  rent  it  will  be  seen  that  the  investigations  of  the 
United  States  Bureau  of  Labor  of  1891  and  1903  agree  with  Engel's 
law — that  the  proportion  of  income  spent  for  rent  is  about  the  same 
for  all  incomes.  But  the  three  more  recent  studies  all  show  a  de- 
creasing   proportion    expended    for    rent.     For    New    York    this    is 


386 


ECONOMICS  OF  RETAILING 


I  4 


f- 


probably  due  to  the  fact  that  the  minimum  housing  is  abnormally 
high,  so  high  for  low  incomes  that  with  higher  incomes  the  people 
cannot  afford  to  move  into  a  better  house  because  they  are  already 
paying  an  abnormal  amount  for  rent.  In  both  New  York  studies, 
rent  takes  more  than  20  per  cent  of  the  family's  income  for  all 
incomes   under  $800   a  year. 

Engel's  law  is  supported  by  the  figures  for  fuel  and  light.  The 
proportion  expended  remains  practically  the  same  for  all  incomes 
covered  by  the  investigations ;  and,  furthermore,  the  percentages  very 
nearly  agree  for  all  the  investigations. 

Engel's  law  in  regard  to  clothing  is  not  borne  out  by  all  the 
studies,  although  the  increase  in  the  proportion  expended  for  clothing: 
is  usually  slight.  There  is  considerable  variation  in  the  percen- 
tages of  expenditure  for  clothing  in  each  income  group  in  the  dif- 
ferent investigations.  Engel's  law  with  regard  to  clothing— that 
the  percentage  of  expenditure  for  that  purpose  did  not  tend  to 
increase  with  increasing  income— has  never  been  borne  out  by  studies 
made  in  the  United  States. 

The  percentages  of  expenditure  for  food  bear  out  Engel's  law 
for  food— that  as  income  increases  the  percentage  of  expenditure 
for  food  decreases.  In  the  $7oo-$8oo  and  $8oo-$900  groups  the 
figures  for  different  investigations  differ  but  slightly. 

Engel's  law  with  regard  to  sundries  is  strikingly  borne  out  by 
every  investigation.     As  income  increases  the  proportion  spent  for 

sundries  increases. 

On  the  whole,  there  is  a  remarkable  harmony  in  the  results  of 
these  five  investigations,  based  as  they  were  upon  families  in 
different  localities  and  at  different  times,  and  studied  by  various 
methods.  It  would  be  safe  to  deduce  from  these  tables  a  few  gen- 
eralizations about  the  expenditure  of  the  income  of  a  workingman's 
family  under  normal  conditions.  For  weekly  incomes  of  from  $12 
to  $18,  the  income  would  usually  be  spent  about  as  follows:  rent, 
18-20  per  cent;  fuel  and  light,  5  per  cent;  clothing,  14  per  cent; 
food,  43-45  per  cent;  sundries,  15-17  per  cent.  This  analysis  may 
not  actually  fit  the  expenditures  of  many  families,  but  it  would 
probably  be  found  that  normal  families  with  incomes  of  the  amounts 
stated  tend  to  approach  these  figures. 


APPENDIX  B 

DEALERS  IN  THE  UNITED  STATES  IN  1913* 

Wholesale  Retail 

Agricultural  implement  dealers  240  5.9^- 

Animal,  bird,  and  goldfish 420 

Art    stores   and   picture    1,900 

Automobile    10,200 

Bakers    620  25,788 

Bicycle    5,013 

Booksellers  and  stationers    1 1,954 

Booksellers  and  stationers    (second  hand) 108 

Boot   and    shoe    522  20,104 

Butchers  and  meat  markets  781  62,798 

Butter  and  eggs   I,i94  

Carpet    83  19,3^6 

Cattle  dealers  and  shippers 20,100 

Cheese    263  

China,  crockery,  and  glassware 340  2,861 

Cigars  and  tobacco  i>99i  40>555 

Cloaks  and  suits   1,988 

Clothing    160  22,713 

Coffee,  tea,  and  spice   547  3.764 

Confectioners    35,423 

Department  stores   i,752 

Drugs    668  43.230 

Dry-goods    725  30.787 

Electrical  supplies  424  3,272 

Fancy  goods  and  notions  exclusive 786  3,759 

Feed,  flour,   and   grain    i,572  19,839 

Fish    950  

Fishing  tackle    3,885 

Five  and  ten  cent — independent 1,054 

Floi  ists    1,765  8,482 

Fruit    1,831  10,087 

Furs    (raw)    305 

Fur    garments    2,334 

Furniture    307  16,131 

Furniture    (second-hand)    2,175 

Gas  and  electric  fixtures 2,476 

^  From    R.    G.    Dun    and    Company's    list    as   compiled    by    the    Rapid    Addressing 
Machine  Company. 

387 


388 


ECONOMICS  OF  RETAILING 


Wholesale 

General  stores   

Glass,   oils,   and  paint    605 

Glove    6^ 

Grain  dealers   1,210 

Grocers    3^840 

Gun    

Hair-goods    

Hardware    928 

Harness  and   saddlery   314 

Hats   and   caps    201 

Hides    

Honey    113 

Hosiery    1,105 

Ice    

Instalment  houses   

Japanese  and  Chinese  goods 

Jewelers    815 

Junk    '. 189 

Laces  and  embroideries  ,         ... 

Liquors    5,412 

Lumber   

Mail-order  houses   

Men's  furnishings  (exclusive)   315 

Milk    

Milliners    424 

Musical  instruments 

Neckwear    315 

Notions  and  toys 802 

Nuts    

Oysters  (dealers  and  shippers) 

Paper    905 

Pianos  and  organs   

Produce    7,785 

Provisions    1,221 

Real  estate   

Rubber  scrap    

Seed  men    597 

Sewing  machines 

Sponges    37 

Sporting   goods    423 

Stamps  and  coins    

Stationery    391 

Stoves    ... 

Tallow   and   pelts    

Tobacco  leaf 592 

Trunks    

Typewriters  and  supplies 


Retail 

144,933 
29,533 

16,78.^ 

172,043 

3,885 

1,037 
20,881 

20,084 

16,240 

1,528 


5,429 
1,488 

413 
22,025 

6,213 

384 
101,605 

29,669 

1,304 
12,387 
11,092 
26,843 

6,185 

6,892 

138 
1,222 

8,040 


70,491 
31 

2,102 

•  •  •   •  • .  • 

2,410 
129 

22,177 
1,528 


712 
810 


APPENDIX 

Undertakers    

Wall  paper   '.*'*.!....!!....!...*  284 

Willow  and   woodenware    j^j 

Wines    * % 

Wool    ^^9 


389 
17,808 

7^7 


There  is  undoubtedly  some  duplication  in  the  numbers 
given  in  the  foregoing  table.  It  would  hardly  be  safe  to  add 
the  number  of  retailers  in  each  line  named  above  to  get  the 
total  number  of  retail  stores.  Some  stores  carry  several 
Imes,  and  it  is  possible  that  the  same  store  may  be  listed  in 
several  lines  in  several  cases.  So  far  as  it  goes,  however,  the 
number  of  dealers  in  any  given  line  as  stated  is  fairly  correct 
that  IS  to  say,  there  were  probably,  in  1913,  43,239  places 
where  drugs  were  sold,  20,881  hardware  stores,  and  so  on 


i 


APPENDIX  C 

RULES  FOR  FIGURING  COSTS  AND  PROFITS' 

1.  Charge  interest  on  the  net  amount  of  your  total  investment  at 
the  beginning  of  your  business  year,  exclusive  of  real  estate. 

2.  Charge  rental  on  all  real  estate  or  buildings  owned  by  you  and 
used  in  your  business  at  a  rate  equal  to  that  which  you  would  receive 
if  renting  or  leasing  it  to  others. 

3.  Charge  in  addition  to  what  you  pay  for  hired  help  an  amount 
equal  to  what  your  services  would  be  worth  to  others;  also  treat  in 
like  manner  the  services  of  any  member  of  your  family  employed  in 
the  business  not  on  the  regular  pay-roll. 

4.  Charge  depreciation  on  all  goods  carried  over  on  which  you 
may  have  to  make  a  less  price  because  of  change  in  style,  damage,  or 
any  other  cause. 

5.  Charge  depreciation  on  buildings,  tools,  fixtures,  or  anything 
else  suffering  from  age  or  wear  and  tear. 

6.  Charge  amounts  donated  or  subscriptions  paid. 

7.  Charge   all   fixed  expenses,   such   as  taxes,   insurance,   water, 

light,  fuel,  etc. 

8.  Charge  all  incidental  expenses,  such  as  drayage,  postage,  office 
supplies,  livery,  or  expenses  of  horses  and  wagons,  telegrams  and 
telephone,  advertising,  canvassing,  etc. 

9.  Charge  losses  of  every  character,  including  goods  stolen  or 
sent  out  and  not  charged,  allowance  made  customers,  bad  debts,  etc. 

10.  Charge  collection  expense. 

11.  Charge  any  other  expense  not  enumerated  above. 

12.  When  you  have  ascertained  what  the  sum  of  all  the  fore- 
going items  amounts  to,  prove  it  by  your  books,  and  you  will  have 
your  total  expense  for  the  year ;  then  divide  this  figure  by  the  total 
of  your  sales,  and  it  will  show  you  the  per  cent  which  it  has  cost 
you  to  do  business. 


'Recommended    by    the    National    Association    of    Credit    Men. 


APPENDIX 


391 


13.  Take  this  per  cent  and  deduct  it  from  the  price  of  any  article 
you  have  sold,  then  subtract  from  the  remainder  what  it  cost  you 
(invoice  price  and  freight),  and  the  result  will  show  your  net 
profit  or  loss  on  the  article. 

14.  Go  over  the  selling  prices  of  the  various  articles  you  handle 
and  see  where  you  stand  as  to  profits;  then  get  busy  in  putting  your 
selling  figures  on  a  profitable  basis — and  talk  it  over  with  your 
competitor  as  well. 


ri\ 


1   ■ 


11     % 

I    3^ 


VV 


«       -'^i 


APPENDIX  D 

METHODS  OF   HANDLING   CASH,   CREDITS,   AND 

SOLD  GOODS 

There  is  considerable  disagreement  among  expert  store 
managers  at  the  present  time  concerning  the  best  methods  of 
handling  cash  and  credits,  and  of  inspecting  and  wrapping 
merchandise.  In  the  early  days  of  store-keeping  the  salesman 
completed  each  transaction  with  each  of  his  customers  by 
accepting  the  money,  making  change,  wrapping,  and  delivering 
the  parcel  to  the  customer. 

Twenty-five  or  more  years  ago  a  number  of  the  larger 
stores  began  to  relieve  salespeople  of  some  of  these  duties  by 
installing  carrier  devices  to  centralize  change-making  and  the 
inspecting  and  wrapping  of  goods.  Cashiers  were  put  in 
charge  of  the  central  money-receiving  and  change-making  sta- 
tion and  inspectors  and  bundle  wrappers  were  placed  at  the 
central  wrapping  stations.  It  was  thought  that  this  division 
of  labor  would  result  in  greater  efficiency  in  all  departments 
as  well  as  greater  security  for  the  store  in  handling  its  cash 
and  merchandise. 

More  recently  there  has  been  a  tendency  towards  decen- 
tralization, particularly  of  the  inspecting  and  wrapping  of 
merchandise.  It  begins  to  appear  that  the  centralization  of 
these  functions  did  not  bring  increased  efficiency  in  all  cases, 
and  that  customers  seem  to  be  best  pleased  when  the  opera- 
tions of  wrapping  are  performed  before  their  eyes  by  the 
salespeople.  The  clerk-wrap  plan,  as  it  is  called,  seems  to  be 
gaining  ground. 

But  whether  cash  and  credits  should  be  handled  from  cen- 
tral stations  or  by  individual  salespeople  in  their  departments 

392 


APPENDIX 


393 


is  a  matter  upon  which  the  widest  difference  of  opinion  seems 
to  prevail.  The  makers  of  devices  to  be  used  both  for  cen- 
tralized and  decentralized  systems  claim  advantages  and  argu- 
ments over  each  other  that  are  hard  to  reconcile.  Testi- 
monials of  the  satisfactory  service  of  the  one  as  against  the 
other  are  given  in  large  number  by  makers  of  the  devices  used 
in  both  plans.  An  analysis  of  some  of  the  arguments  which 
are  advanced  on  both  sides  follows : 


Arguments  in  favor  of  a  de- 
centraliced  system  of  handling 
cash  by  means  of  cash  registers. 

1.  Takes    less    time    to    make 

change.  No  waits  for 
money  to  go  to  cashiers. 
No  delays  such  as  due  to 
stoppage  of  tubes,  broken 
cables,  delays  of  cashiers, 
etc. 

2.  Cost    less.     Small    cost    of 

up-keep.  No  power  plant 
required. 

3.  Saves  steps  for  salespeople. 

Easy  to  move  cash  regis- 
ters to  convenient  loca- 
tions. 


4.  Takes    up    little    room    and 

adds  to  attractiveness  of 
store. 

5.  Insures  protection  of  store's 

cash.     Claimed    that    car- 
riers do  not. 


Arguments  in  favor  of  a  cen- 
tralised system  for  handling  cash 
by  means  of  pneumatic  tubes  or 
other  forms  of  carriers. 

1.  Take    less    time    to    make 

change.  No  waits  because 
of  salespeople  waiting 
their  turns  at  cash  regis- 
ters. Change  made  by 
expert  cashiers  while 
salespeople   wrap   parcels. 

2.  Cost   less.     Small   operating 

expense. 

3.  Saves  steps  for  salespeople. 

Easy  to  provide  conveni- 
ent tube  or  cable  stations. 
For  the  price  of  a  multi- 
ple drawer  cash  register, 
three  or  four  tube  stations 
can  be  installed. 

4.  Takes    up    less    room    than 

cash  registers  in  sales  de- 
partments. 

5.  Insures  protection  of  store's 

cash.  Claimed  that  cash 
registers  do  not. 


, 


394 


ECONOMICS  OF  RETAILING 


Salesperson  made  respon- 
sible. A  good  thing. 
Salesmanship  improved. 
Waits  for  change  over 
carrier  systems  are  em- 
barrassing. Customers  are 
better  pleased  when  sales- 
person gives  entire  ser- 
vice required.  Disputes 
can  be  settled  on  the  spot. 
All  parties  to  the  transac- 
tion close  at  hand. 

Miscellaneous.  Easy  to 
audit  from  printed  record. 
No  expenses  for  cashiers. 
Receipt  plan  reduces 
salesperson's  temptation 
to  dishonesty.  Not  neces- 
sary to  make  out  sales 
slips  in  some  departments, 
when  cash  register  re- 
ceipts are  given  out. 
Salespeople  like  registers. 


Responsibility  removed 
from  salesperson.  A  good 
thing.  Salesmanship  im- 
proved. Salespeople  do 
not  have  to  think  about 
cash.  Can  give  whole 
time  to  selling  more 
goods. 


7. 


Miscellaneous.  Constant 
control  over,  and  easy  ac- 
cess to,  cash  when  cen- 
tralized. Expenses  for 
cashiers  distributed 
among  salespeople  when 
cash  registers  are  used. 
Salespeople  cannot  detect 
counterfeits.  Cashiers 
can.  Salespeople  like  car- 
rier and  tube  systems. 


\ 


INDEX 


Accounting,    retail,    59-64 
Accounts,  departmentalized,  2};]^  238 
Adams,  T.  S.,  350 
Advertising,  215,  216 

by  department  stores,  251,  252 

by  mail-order  houses,  295,  296 

truthful,  302,  303 

untruthful,  255 
Attracting  trade, 

by  advertising,  215,  216 

display  space,  218 

window  displays,  216-218 
Agency  failure  statistics,  310 
American  Federation  of  Labor,  158 
Applicant,    observation    of,    by    em- 
ployment manager,  103,  104 
Application  blank,  105-107 
Aristotle,  on  retailing,  4 
Article,   customer's    desire   for,   224, 
225 

B 

Bacon,  Sir  Francis,  6 

Bagmen,  17 

Barcus,  on  "Science  of  Selling,"  123 

Bargain  sales,  252 

Binet,   102,   103 

Bradstreet,  J.  M.,  19,  20,  55,  310,  Z\2, 
328 

Bruce,  R.  A.,  200 

Building,  205-207 

Building  rent,  169,  170  (See  also 
"Rent") 

Burroughs  Adding  Machine  Com- 
pany, 58,  63 

Business  books,  characteristics  of 
early  ones,  9-10 


Business  literature,  recent  tendencies 

of,  10 
Business  regulation, 

arguments  for,  360,  361 

opposition  to,  359 
Business    taxes,    346,    347,    355,    356 
(See  also  "Taxes") 

payment  of,  348 

purposes  of,  348,  349 
Business  writing,  development  of, 

7-8 
Butler  Brothers,  63 
Buyers, 

for  department  stores,  256,  260 

for  mail-order  houses,  299,  300 
Buying,  department  store,  253 


Canada,  business  taxes  tn,  354 
Canned  goods,  44-46 
Capital,   investments   of   in   goods, 
2Z'2,  233  (See  also  "Turnovers") 
Carnegie  Institute  of  Technology,  130 
Cash  buying,  301 
Chain  stores,  268-287 

bonuses,. 285 

bulk  buying  of,  272,  273 

careful  organization  necessary,  280 

checks  and  safeguards  of,  283,  284 

classification  of,  271 

competitive  advantages  of,  277,278 

cut  prices  in,  278 

daily  reports,  282 

development  of,  271,  272 

disadvantages  of,  279-280 

European,  270,  271 

future  of,  286,  287 


395 


396 


INDEX 


Chain  stores — Continued 

jobbers,  273 

local  manager,  285,  286 

net  returns,  276 

number  of,  268,  269 

object  of,  272 

origin  of,  268 

private  brands,  278,  279 

results  from,  284,  285 

rise  of,  371,  372 

special  departments,  280,  281 

store  equipment  department,  282 

subsidiary  companies,  281,  282 

superior   executive    management, 
276,  277 

United  States,  269,  270 

weekly  summaries,  282,  283 
Chalmers,  Hugh,  122 
Chapmen,  17 

Character  analysis,  100,  loi 
Charts, 

channels  of  distribution,  26-28 

comparison  of  number  of  retailers 
with  value  of  production,  338 

decrease  of  production  cost  and  in- 
crease of  distribution  costs,  342 

organization,  257,  258 
Cicero,  on  merchants,  4 
Cities,  growth  of  and  distribution  in, 

340 

Class  taxes,  350-352 
Cole,  George  S,,  123 
Commercial  travelers,  21 
Commission  payments,  difficulties  in, 

150,  151 

Community  habits,  35,  36 
Competing    stores,    advantages    of 

close  location,  195,  196 
Competition, 

dealers',  226,  227 

effect  of  taxes  on,  361 

evil  effects  of,  227,  228 

of  desires,  226 

remedy  for,  362-365 


Consumer-demand,    225     (See    aluo 
"Demand") 
examples  of  change  in,  43,  44 
fluctuation  of,  43 

Consumers,    30-50    (See    also    "Cus- 
tomers") 
benefit,  by  competition,  376 
controls  retail  market,  49,  50 
co-operative  chains,  275,  276 
definition  of,  31 

general  characteristics  of,  36,  37 
importance    of    in    store    planning, 

30,  31 
satisfying  demands  of,  34,  35 

Consumption  per  capita,  table  of,  38 
Correspondence  course  for  salespeo- 
ple, 119 
Cost  accounting,  retail,  59-64 

investigations  in,  57-59 
Cost  accounts,  relation  of,  to  prices, 

238,  239 
Cost  investigation,  results  of,  57-S9, 

65,66 
Cost  of  living, 
effect  on,  of  canned  goods,  44-46 
percentage  of  expenditure,  table,  41 

Costs, 

effect  of,  on  retail  prices,  222,  223 

distinct  kinds,  for  retailer,  60-62 

publicity  of,  245 

selling,  table,  146 
Crowd,   habits    of   as   regards    store 

location,  200,  201 
Curtis  Publishing  Company,  cost  in- 
vestigations, 65 
Customers,   (See  also  "Consumers") 

buying  habits  of,  196,  197 

habits  of,  as  to  store  location,  34 

protection  of,  369,  370 

purchasing  power   of,   on   location 
values,  191 

racial  characteristics  of,  34,  35 

satisfying  desires  of,  73 


INDEX 


397 


Dealers  ("See  Retailers") 
De  Bow,  J.  D.  B.,  Review,  8-9 
De  Foe,  Daniel,  7,  18 
Demand, 

changes  in,  46,  47 

factors  influencing,  31-33 

influence  of  children  on,  31,  32 

influence  of  sex  on,  32,  33 

measured  by,  224,  225 

reasons  for  changes  in,  47-49 

sectional,  36 
Department  store,  246-266 

abroad,  249,  250 

advantages  of  central  location,  261, 
262 

advertising  by,  251,  252 

definition  of,  246 

economies  of,  262,  263 

efficiency  of,  259 

formed  by  consolidations,  247 

high  expenses  of,  263,  264 

leaks  in,  261 

number  of  248,  249 

organization  charts,  257,  258 

origin  of,  246 

period  of  rapid  development  of, 

248 
poor  salesmanship,  265,  266 
service  of,  250,  251 
specialized  organization,  256 
unity  obtained  by,  250 
Department  store  buying,  253,  254 
Department  Store  Education  Associa- 
tion, 127,  128 
Department    store    merchandising, 

characteristics  of,  250-252 
Departments,  non-productive, 

location  of,  in  store,  211 
Desire,  increase  of,  by  teaching,  225, 

226 
Displays,  arrangement  of,  for  attrac- 
tiveness, 212-214 


Distribution, 

channels  of,  25-28 

definition  of,  i 

functions  mostly  neglected,  1-2 

how  to  solve  problem  of,  11 

of  goods,  i-ii    (See  also  "Retail- 
ing") 

reasons  for  lack  of  interest  in,  2,  3 
Distribution  costs,  342 
Distributive  systems,  evolution  of,  36S 
Distributors, 

comparison  of,  336 

increase  of  with  products,  339,  340 
Division  of  labor,  260 
Drummers,  21,  22 

Dry-goods  and  women's  ready  t^> 
wear  stores,  costs  of  doing  busi- 
ness in,  66 
Dun,  R.  G.  &  Company,  19,  20,  55, 
310,  312,  328 


Economics,  literature  on,  8 
Economists, 

analysis  of  production,  175,  176 

contribution  to  business  writing, 
7-8 

faults  in  production  theory,  176, 177 
Education, 

effect  of,  on  demand,  47,  48 
Education  of  salespeople,  80,  1 12-144, 
165,  166 

correspondence  course,  119 

courses,  125-143 
outline,  I33-I43 

efficiency  bulletins,  114-117 

"flying  squads,"  120 

history  and  progress  of,  122-133 

libraries  for,  118 

literature,  122,  123,  127,  128 

progressive  promotion,  119 

public  schools,  130 

reading  course,  118 


398 


INDEX 


Education  of  Salespeople — Continued 

special  instructors,  II2 

store  conferences,  113 

store  manuals,  83-90,  113,  114 

trade  papers,  117-I18 

trips  to  factories,  etc.,  1 14 

understudy  systems,  120 
Educational  Association,  132 
Efficiency  bulletins,  114,  115 
Employees,  department  of,  93-95 
Employment  department,  93 
Employment  psychology,  102 
England, 

department  stores  in,  249 

medieval  laws  against  retailers,  4-5 

Proprietary  Articles  Trade  Associa- 
tion, 378,  379 
Equipment,  369 
Expenditures  of  average  families,  40, 

41 
Extra-salary  remuneration,  1 53-154 


Failures,  309-326 

causes  of,  32$ 

comparative  tables  of,  32^-323 

estimates  of,  311,  312 

statements  of,  310,  311 

term  defined,  309 
Fair  price,  arriving  at,  228 
Family  budget,  41 
Family  expenditures,  distribution  of, 

37,38 
Federal  Board  of  Vocational  Educa- 
tion, 133 
Federal  Trade  Commission,  59,  60 
Fernley,  Thomas  A.,  58,  59,  63,  64 
Filene,  Wm.  Sons  Company,  115,  125, 
127 
efficiency  bulletins,  115-117 
Fines,  156 
Fixtures,  economizing  space  with,  214, 

215 


Floor  rent,  making  apportionment  of, 

208,  209 

Floor  space,  effective  use  of,  210,  211 
Floors, 

estimating  value  of,  207 

mezzanine  and  balconies,  use  of, 

209,  210 
"Flying  squads,"   120 

Foreign   trade    (See    "Merchant   ad- 
venturers' companies") 
Foster,  B.  F.,  "Merchants  Manual,"  8 
French  business  tax,  353 


Galloway,  Dr.  Lee,  132 
General  wage  levels,  149 
Gilbreth,  Mr.  and  Mrs.  F.  M.,  121 
Goddard,  F.  B.,  123 
Goods, 

allocation  of,  211,  212 

delivery  of,  297,  298 

manufactured,  334,  335 

quick  turnover  of,  212 

variable  value  of,  240,  241 
Good-will,  factor  in  employment,  99 
Goodwin,  Frank  E.,  63 
Government  regulation,  extent  of,  379 
Graphology,  lOi 

Ground    rent,    169,    170    (See    also 
"Rent") 

H 

Habits   of   crowds   on   store   loca- 
tions, 200,  201 
Hart,  Schaffner  and  Marx,  59 
Harvard   retail   shoe  store  investiga- 
tion, 57,  66,  237 
Harvard  system  of  accounts,  S7-59»  63 
Health,  80,  81 

Hiring  and  firing,  cost  of,  93 
Hirschler,  Diana,  school,  of,  126,  127 
"Hoodoo"  locations,  199,  200 
Hours  of  labor, 

effect  of,  on  demand,  48 


INDEX 


399 


Hunt,  "Merchants'  Manual,"  8 

Hurd,  R.  M.,  I99 

Hurley,  Edward  N.,  59,  60 

I 

Immigration,   effect   of,   on   demand. 

Importer,    as    merchant    and    whole- 
saler, 18 

Income, 

expenditure  of  by  workmen's  fami- 
lies, 40 
of  families  in  United  States,  1918, 

39 
Increasing  sales, 

relation  of  expense  to,  233,  234 
Industrial  revolution,  16 
Ingersoll,  William  H.,  59 
Instinct, 

appeal  to,  42,  43 
Interviews,  as  tests  of  ability,  99-ioo 


Jobbers*  chains,  273,  274 

K 

Kennard,  Miss  Beulah  E.,  127-128 


Labor  turnover,  91-93 

reasons  for  high  rate  in,  91,  92 
Leroy-Beaulieu,  3^7 
Library  for  salespeople,  118 
License  and  taxes,  347,  348,  362 
Licensing, 

legal  objections  to,  37^ 
Life  Extension  Institute,  no 
Location,  (See  also  "Rent") 

accessibility  of,  202,  203 

best,  obtained  by  efficient  managers, 

176 
change  of,  undesirability,  178,  I79 

counterbalances  in  rent  of,  180 


department  store,  261,  262 

effect  on,  of  customers'  purchasing 

power,  191 
effect  on,  of  passers-by,  191-193 
good,  necessity  of,  168 
increase  in  cost  of  city  over  town, 

183,  184 
influence  upon  rents,  173,  174 
intensive  cultivation  of,  204 
suitable  buildings,  205 
value  of,  determined  by  profits,  188 
Low   wages,   employment   of   women 

at,  157 

M 

Mail-order  houses,  288-308 
advantages  of,  306,  307 
advertising  by,  295,  296 
beginnings  of,  288-290 
buying  methods  of,  300-302 
causes  of  development,  295 
competing  with  small-town  mer- 
chant, 294 
correspondence  department,  303 
costs  of,  304-306 
credit  business  of,  298,  299 
disadvantages  of,  307,  308 
efficiency  methods  of,  303,  304 
employees  in,  304 
growth  of,  reasons  for,  292,  293 
guarantees  given  by,  301,  302 
handling  orders  in,  296,  297 
increased  earning  power  of,  293 
methods  of,  highly  developed,  292 
purchasing  department  in,  299,  300 
recent  development  of,  288 
truthful  advertising  of,  302,  303 
volume  of  business  of,  291 
Manuals,  store,  83-90,  113,  Ii4 
Manufacturer,  hazards  of,  275 
Manufactures,   ratio   of  to  retailers, 

337 
Manufacturers'  chains,  274,  275 
Manufacturing  costs,  342 


400 


INDEX 


It 


Mason,  Harry  B.,  38 
Massachusetts, 

Bureau  of  Labor  Statistics,  54 

Cost  of  Living  Commission,  40,  45 

trade  census  of,  53,  54 
Mercantile  agency,  20,  55 

opposition  to,  20,  21 
Merchandise  manuals,  128 
Merchant  adventurers'  companies,  14, 

15 
Merchant  trading  organizations,  15, 16 
Middleman, 

absence  of,  12-13 

advent  of,  13 

ehmination  of,  25 
Mill,  John  Stuart,  327 
Alinimum  wage,  160-165 

arguments  against,  163 

arguments  for,  162,  163 

laws,  operation  of,  161,  162 

legislation  on,  160,  161 

sources  of  propaganda  on,  160 

summary  of  arguments  on,  164,  165 
Minnesota,  University  of,  short  course 

for  merchants,  59 
Monopolies  and  taxes,  349 
Montgomery  Ward  and  Co.,  287,  288 
Municipal  taxes,  356 

N 

National  Association  of  Credit  Men, 
58,  63 

National  Association  of  Retail  Drug- 
gists, 228 

National  Cash  Register  Co.  sales- 
manship courses,  122 

National  Implement  and  Vehicle  As- 
sociation, 63 

National  Retail  Dry  Goods  Associa- 
tion, 125 

Neighborhood  stores,  189,  190 

New   employees,    (See   also   "Educa- 
tion of  salespeople") 
systemized  instruction  for,  113 


New  York  City, 

street  values  for  shoppers,  198,  199 
New  York  Department  Stores, 

percentage  of  selling  in,  by  depart- 
ments, 146 
New  York  plan,  130 
New  York  State  Factory  Investiga 

ting  Commission,  92 
New  York  University, 

retail  selling,  course  in,  131-132 


One-price  policy,  242,  243 
success  of,  243 

Opportunity  cost,  225 

Organization  charts,  257,  258 

Oshkosh,  313-320 
general  facts  of,  313-315 
study  of  failures  in,  312,  313 


Package  and  canned  goods,  argu- 
ments in  favor  of,  45 

Parlin,  C.  C,  65 

Passers-by, 
frame  of  mind  of,  191,  192 
number  of,  190,  191 
shoppers,  most  valuable,  193 

Peddlers'  taxes,  349,  350 

Perry,  George  Hough,  255 

Personality  in  selling,  79 

Phrenology,  loi 

Physical  audit,  109 

Physical  examinations,  108-111 

Physical    weaknesses     hindrance    of, 
108 

Physiognomy,  loi,  102 

Pictures,  eflfect  of,  on  demands,  49 

P  M's,  151 

Premium   payments    for   salespeople, 
purpose  of,  152,  153 

Price,  Mrs.  Lucinda  W.,  124-126 

Price-cutting,  results  of,  227,  228 


INDEX 


401 


Price-fixing, 

effect  on,  of  customers'  desirability, 
224,  225 

salespeople  assisting  in,  240 
Price  levels,  point  at  which  fixed,  226 
Producers,  friction  between  retailers, 

causes  of,  373,  374 

remedies  for,  374,  375 
Production  costs,  341,  342 
Profit-sharing,  151,  152 
Promotions  of  salespeople,  119 
Proprietary  Articles  Trade  Associa- 
tion, 378,  379 
Prussian  tax,  353,  354 
Psychology,  102 
Public,  viewpoint  of,  on  number  of 

retail  stores,  343,  344 
Public  regulation, 

arguments  for,  360 

by   business    taxes,   346,    347    (See 
also  "Business  tax") 

difficulties  of,  3^3,  364 

elimination  of  parasites  by,  362, 363 

necessity  of,  364 

summary  of  points,  365 

R 

Ready-to-wear    stores,    costs    of    do- 
ing business,  66 
References,  values  of,  107,  108 
Rents,   (See  also  "Location") 

amount  paid,  170,  171 

changes  in,  causes,  178,  179 

characteristics  of,  183 

checks  to  high,  185,  186 

definition  and  classification  of,  169 

distribution  of,  218 

effect  on,  of  competition,  174,  I75 

effect  on,  of  location,  173,  174 

ground  and  building  separate,  169, 
170 

ground,  dependent  on  location,  171, 
172 


high,  reasons  for,  179-187 

maximum  of,  185 

not  controlled  by  business  man,  177 

percentage  of,  to  sales,  180,  181 

relative  increase  in,  182,  183 
Research   Bureau   for  Retail   Train- 
ing, 129 
Retail  business, 

expenses  of,  65 

public  regulation  of,  346-359 
Retail  failures, 

relief  from,  326 

wholesaler  and,  325,  326 
Retail  grocers, 

ratio  of  compared  with  population, 

330,  331 
Retail  locations, 
disagreeable  surroundings,  detri- 
ment to,  201,  202 
effect  on,  of  climatic  conditions,  199 
effect   on,   of   people's   movements, 

197 
"hoodoos,"  199,  200 
intensive  cultivation,  miscellaneous 

methods,  220,  221 
value  of  comer  lots,  200,  201 

Retail  prices, 

cost  factor  in,  222,  223 
differing  ideas  of  value  on,  230,231 
effect  on,  of  desire,  225 
effect  on,  of  habit,  228,  229 
ethical  influence  on,  229,  230 
other  considerations  on,  223,  224 
"what  the  traffic  will  bear,"  222 

Retail  pricing  systems, 
effect  on  toilet  soaps,  231,  232 

Retail  salesmanship, 
outline  of  course  in,  133-143 

Retail  stores,  (See  also  "Retailers") 
as  social  expense  burden,  344,  345 
average  length  of   employment   in, 

92,  93 
beginnings  of,  12-13 
centrally  located,  190,  191 


402 


INDEX 


It 


Retail  stores — Continued 
classifying  expenses  on  sales  cost 

or  gcods  cost  basis,  63,  64 
development  of,  2Z,  24,  329,  330 
division  of  labor  in,  69,  70 
effect  on,  of  public  market,  196 
erection  of  building,  205-207 
expenses,  classification  of,  61,  62 
failure  rate  of,  309-325 
functions  of,  30 

instruction  in  salesmanship,  124 
job  analysis  in,  95-97 
number  of,  327-330 
compared  with  population,  331 
how  to  measure,  ^27,  328 
claim  to  be  excessive,  327 
proportion  of  men  and  women  in, 

70,  71 
tendency  toward  grouping,  194,  195 
where  found,  12 
Retail  trade  literature,  6-1 1 
Retailers,  (See  also  "Retail  stores") 
friction   between   producers   and, 

causes  of,  2,73,  374 
friction   between   producers  and, 

remedies  for,  3,74-276 
functions  of,  25,  334,  26S 
hostile  criticism  of,  2-^ 
increase   of,   with   population,   2Z2f 

Z33 
methods  of,  before  Civil  War,  18, 

19 
public  attitude  toward,  6 
public  servants,  368,  369 
viewpoint  of,  343 
Retailers'  costs,  publicity  of,  245 
Retailing, 
charging  methods  of,  367^  368 
courses  in,  125-143 

outline,  I33-I43 
development  of, 
in  America,  18-25 
in  England,  12-18 
table  on,  329 


education    for,    1 12-143    (See   also 
"Education  of  salespeople") 

expenses  of,  56-68 

ideal  system  of,  367-382 

literature   on,  6,  7,  9-1 1,   122,   123, 
127,  128 

persons  engaged  in,  330 

public  regulation  of,  346-365 

two  distinct  costs  in,  60 
Rogers,  Thorold,  2V 
Roscher,  2V 
Rule  books,  83-90,  113,  114 

S 

St.  Chrysostom,  on  traders,  4 
Salaries  (See  "Wages") 
Sales, 

determined  by  accessibility,  189 

increasing,  relation  of  expense  to, 
^33,  234 
Salesmanship, 

courses   (See  "Education  of  sales- 
people") 

evils  of,  76-78 

literature  on,  122,  123,  127,  128 

social  importance  of,  75,  76 

what  it  consists  of,  226 
Salespeople, 

connecting  goods  with  wants,  72,  72 

duty  of,  369 

educating  (See  "Education  of  sales- 
people") 

in  trying  situations,  79,  80 

influencing  customer's  decision,  74, 

75 

progressive  training  of,  119 

psychological  tests  for,  103 

traveling,  21,  22 

trips  for,  114 

unionization  of,  158,  159 

work  of,  71,  72 
Salespeoples*  wages, 

percentage  of,  to  total  sales,  147-149 
Scientific  study,  progress  by,  380-382 


INDEX 


403 


Sears,    Roebuck   and   Company,   289, 

290 
Selling,  factors  in,  78,  79 
SelHng  agencies, 
multiplication  of,  undesirable,  372- 

373 
Selling  expense,  table,  146 

Selling  price, 

setting  of,  239,  240 
Service,  quick,  212 
Service  manuals,  83-90,. II3,  II4 
Sheldon,  A.  F.,  123 
Shoe  stores, 

cost  of  selling  in,  57,  (16,  237 
Shoppers,  193 

Shops,  12-13  (See  also  "Stores") 
Sick  and  death  benefit  associations, 

154,  156 
Simon,  102,  103 
Simmons  College,  125 
Smith,  Adam,  on  traders,  5 
Specialty  stores,  13-^A,  24 
organization  chart,  257 
Spencer,  Herbert,  on  trading  classes, 

5-6 
"Spiffs,"  151 
Stabilized   merchandising   conditions, 

results  of,  254,  255 
Standard    equipment,    advantage    of, 

214 
Standard  of  living  and  distribution, 

relation  between,  340,  341 
State  business  taxes,  355,  356 
Statistics,  value  of,  379,  380 
Stokes,  J.  J.,  255 
Storage  room,  212 
Store  conference,  113 
Store  equipment,  369 
Store  manual,  83-90,  1 13,  114 
Store  physician,  81 
Stores, 
chain,  268-287 
department     (See     "Department 

stores") 


grouping,  194 
mail-order,  288-308 
neighborhood,  189 
retail  (See  "Retail  stores**) 
specialty,  13-14  24,  257 
Sullivan,  J.  W.,  350 


Taxable  occupations,  356,  357 
Taxation  values, 

relative,  of  business  real  estate,  218 
rules  of,  219,  220 
Taxes,  346-365    (See  also  "Business 
taxes") 
Canada,  354 
France,  353 

limiting  competition  by,  361,  362 
methods  of  assessment,  352,  353 
paid  by,  357,  358 
Prussia,  353 
shifting  of,  358,  359 
United  States, 
federal,  355 
municipal,  356 
state,  355,  35^ 
Thrift  plans,  154 

Trade  papers  for  salespeople,  117-118 
"Tradesman,  Complete  English,"  6-7 
Traveling  salespien,  21-22 
Traveling    salesman    system,    results 

of,  22,  23 
Trusts,  377,  378 
Turnovers, 
of  labor,  91-93 
of  stock,  222,  223 
rapid   as   increase  to  net  profit, 

212,  233,  234 
table  on,  235,  236 

U 

Understudy  system,  120,  I2I 
Unions  among  store  people,  158-160 
United  Cigar  Stores,  114 


404 


INDEX 


United  Drug  Company,  114 
United  States  Bureau  of  Labor,  in- 
vestigation of  family  budgets  by, 

40 
United  States  business  tax,  355 
United  States  Census, 
difficulties  of,  52 
of  manufactures,  234-337 
of  occupations,  330,  33i,  332 
statistics  on  retail  stores,  5i>  52 
United  States  Commission  of  Educa- 
tion, 133 


Vacancies,  how  filled,  97-99 
Variable  price  system,  243,  244 

W 

"Wage-Earning  Women  in  Stores 
and  Factories,"  report  on,  70,  71 

Wages, 
high,  effect  of,  on  demand,  48 
low,  social  and  economic  side  of, 

157 

methods  of  payment,  I49»  I50 

of  salespeople,  145-165 

percentage  of,  to  total  expense,  145 


Wanamaker  Commercial  Institute, 

124 
Wanamaker,  John,  124,  199,  311,  312 
Wanamaker  Mutual  Benefit  Associa- 
tion, 155 
Wholesaler, 
as  importer,  18 
failure  of  retailer,  325 
functions  of,  24,  2$ 
Wholesaling, 

beginning  of,  16,  17 
methods,  17,  18 
Wisconsin, 

costs  of  retailing  in,  67,  68 

public   schools,  courses  in   retail 

selling,  132 
study  of  failures  in,  3^3-3^0 
Wisconsin   University,   "merchant" 

courses  in,  128,  129 
Wisner,  Miss  Helen  C,  I33 
Women,  selling  to,  33 
Women's  Educational  and  Industrial 
Union,  124 


Y.  M.  C.  A.,  salesmanship  taught  in, 
123 


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